B E Y O N D R I S K ➜

In developed markets, the concept that environmental

risk can critically affect the viability of investments is well

understood. But in emerging markets, the appearance of

a new set of global stakeholders presents both risks and

opportunities for financiers. ➜

JAPAN/IFC

COMPREHENSIVE

TECHNICAL ASSISTANCE

TRUST FUND

INTERNATIONAL FINANCE CORPORATION

A Member of the

World Bank Group

➜ S U S TA I N A B I L I T Y A N D T H E E M E R G I N G M A R K E T S F I N A N C I A L S E C TO R FOREWORD➜ With support from the Japan/IFC Comprehensive Technical Assistance

Trust Fund, IFC has developed a pioneering program designed to help its financial

sector clients in emerging markets integrate environmental management techniques

into their operating practice.

Drawing on the lessons of experience of these clients, the objective of this

casebook is to examine emerging risks for the financial sector, outlining examples

of strategic responses that have the potential to transform this risk into opportunity

and documenting experience in implementing these initiatives successfully.

Letitia F. Lowe

ACKNOWLEDGEMENTSThis casebook has been prepared by Leo Johnson, Consultant, on behalf of the Environment andSocial Development Department of the International Finance Corporation (IFC). The project was madepossible by the generous financial support of the Japan/IFC Comprehensive Technical Assistance TrustFund. The task manager for the project was Letitia Lowe.

Many people within IFC provided valuable guidance, input and support including: Glen Armstrong,Martyn Riddle, Imoni Akpofure, Dan Siddy, Todd Hanson, Clive Mason, Maria Gallegos, VanessaManuel, Sevaun Palvetzian, Debra Sequeira, James Beck, Zenaida Chavez, Sarah Ruck, Richard Caines,Bernie Sheahan, Karin Strydom, Batsuren Eenjin and Stuart Turnbull.

Thanks also go to:Andre Abadie, Charity Agorsor, Vera Assad, Trevor Bowden, Ferdinando Buffoni, Cesare Calari,Michael Campbell, James Casey, Paul Clements-Hunt, Josefina Doumbia, Roberto Esmeraldi, WarrenEvans, John Ganzi, Maureen Gilbert, Iris Gold, Caroline Goldie, Bregje Hamelynck, Harvey Himberg,Hilary Hoagland-Grey, Mark Hughes, Madeleine Jacobs, Kaj Jensen, Stanley Johnson, Mark King,Rachel Kyte, Julian Lampietti, Dana Lane, Arthur Levi, Tina Mack, Jacob Malthouse, Arvind Mathur,Shawn Miller, Mario Monzoni, Herman Mulder, Taies Nezam, Joe O’Keefe, Michael O’Neill, NiamhO’Sullivan, Harry Pastuzek, Vipul Prakash, Bruce Purdue, Gladis Ribeiro, Helen Sahi, Robin Sandenburgh,Alke Schmidt, Corrie Shanahan, Mangala Suresh, Felice Tambussi, A.J. Teixeira, Yogesh Vyas, UdayanWagle, Flavio Weizenmann, Christina Wood, Prakash Yardi, Caroline Zuniga.

Special thanks go to: Vijay Joshi and the management of IL&FS, Roberto Dumas Damas, and MariaEstela Ferraz de Campos of BBA, Ziad Oueslati of Tuninvest, Gaspar Millhaiffy, Laszlo Szabo andAttila Bogdan of Raiffeisen Bank and all of the participants in the CEA workshops.

Table of Contents1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

2 THE NEW GEOGRAPHY OF RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

3 THE EMERGING MARKET RESPONSE . . . . . . . . . . . . . . . . . . . . . . . .25

4 LESSONS FROM THE FIELD: SUSTAINABILITY IN ACTION . . . . . . . . .45

5 CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . .57

ANNEXES

A) LIST OF BOXES, FIGURES AND TABLES . . . . . . . . . . . . . . . . . . . . .65

B) SURVEY, METHODOLOGY, QUESTIONNAIRE PRO-FORMA,

UPTAKE OF ENVIRONMENT INITIATIVES . . . . . . . . . . . . . . . . . . . .69

C) LIST OF SITE VISITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

D) CEA WORKSHOPS AND PARTICIPANTS . . . . . . . . . . . . . . . . . . . .83

E) REFERENCES, LINKS AND FURTHER INFORMATION SOURCES . . . . . . . .93

4

ISO International Organization for Standardization

MOF Ministry of Finance

NGO Non-Governmental Organization

NPL Non-Performing Loan

OECD Organization of Economic Cooperation and Development

SME Small and Medium-sized Enterprise

SRI Socially Responsible Investment

UNEP United Nations Environment Program

USAID United States Agency for International Development

WB World Bank

WBG World Bank Group

WCED World Commission on Environment and Development

WTO World Trade Organization

WWF World Wide Fund for Nature

1.INTRODUCTIONA successful bank can no longer just look at the commercial performance of a customer. It has to consider its broader performance in environmentaland social issues.”

Roberto Dumas Damas

Banco BBA Creditanstalt, Brazil ➜

ACRONYMSADB Asian Development Bank

AFDB African Development Bank

CEA Competitive Environmental Advantage

CDC Commonwealth Development Corporation

EBRD European Bank for Reconstruction and Development

EIB European Investment Bank

EMAS Eco-Management and Audit Scheme

EMS Environmental Management System

ESMG Environment and Social Management Group

EU European Union

FI Financial Intermediary

IFC International Finance Corporation

IFI International Financial Institution

IPO Initial Public Offering

“

➜ SINCE 1997, OVER 375 MANAGERS FROM 275 FINANCIAL INSTITUTIONS

AND 45 NATIONS HAVE PARTICIPATED IN THE COMPETITIVE

ENVIRONMENTAL ADVANTAGE WORKSHOP SERIES

7

➜ Since mid-1997, as part of a two-phased program

funded by the Japan/IFC Comprehensive Technical

Assistance Trust Fund, IFC has collaborated with

regional, multilateral and bilateral development

banks in running the Competitive Environmental

Advantage (CEA) workshop program. The workshops,

part of a program designed to build environmental

appraisal capacity in private financial institutions

from developing and transitional economies, aim

to equip participants to complete three tasks:

1. Assess the strategic rationale for environmental

management for their financial institutions

2. Perform cost-effective environmental risk manage-

ment of investments

3. Implement value-adding environmental techniques

institution-wide

Since 1997, over 375 managers from 275 financial

institutions and 45 nations have participated in the

workshops, with institution types including commer-

cial banking, project finance, leasing and private

equity. Annex D provides details of the workshops

held to date, together with a list of the participant

institutions & partner development banks.

Under the second phase of the program IFC set out

to complete three tasks:

■ a website on environmental management for the

financial sector

■ development of a Trainer’s Manual

■ publication of a casebook on environmental man-

agement in the emerging markets financial sector.

OBJECTIVESThis casebook, the first of its kind to focus exclusively

on the emerging markets financial sector, aims to cap-

ture the lessons of experience of IFC’s participating

institutions:

Chapter 1 provides background and summarizes

objectives.

Chapter 2 summarizes major sustainability-related

business drivers for the financial sector.

Chapter 3 provides illustrative examples of leading

financial institutions that have responded

strategically to these business drivers,

including examples from commercial

banking, leasing, private equity and

project financing institutions.

Chapter 4 examines good practice in implementing

a cost-effective management system to

respond to these risks and opportunities.

Chapter 5 presents summary conclusions and a series

of recommendations.

Introduction

8

2.THE NEW GEOGRAPHY OF RISKWhat is the relevance of sustainability to the emerging markets financial sector? ➜

METHODOLOGYFor this casebook IFC used a three-part approach

designed to capture the experiences and expertise

of the workshop participants:

■ IFC conducted a series of in-depth interviews

with senior management participants of the CEA

workshops.

■ IFC conducted a detailed questionnaire survey

of a representative sample of 60 institutions from

different regions.

■ In addition, IFC reviewed current best practice

among institutions in the international financial

sector.

Annex B presents a more detailed review of the

methodology.

Beyond Risk

Beyond Risk The New Geography of Risk

➜ THE SIGNIFICANCE OF ENVIRONMENTAL AND SOCIAL ISSUES FOR

FINANCIAL INSTITUTIONS HAS, IN GENERAL, BEEN CONSIDERED LIMITED

➜ WHAT IS THE RELEVANCEOF ENVIRONMENT TO BANKS?The emerging markets financial sector

faces a growing number of competitive

pressures; from economic integration to

the rise of technology-enabled banks and

non-bank competition (See Figure 2.1, left).

What is the relevance of environmental

and social factors to the performance of

a financial institution?

The significance of environmental and

social issues for financial institutions has,

in general, been considered limited. In

a number of developed countries, where

banks have been held directly liable for

the clean up of contaminated collateral,

environmental due diligence has begun

to form a routine part of the due dili-

gence process.

Direct Legal Liabilities

Between 1986 and 1996, a number of

court rulings and well-publicized cases

on environmental damage widened the

focus of lenders: not only towards con-

cern for pre-existing conditions on

properties on which they foreclosed,

but also onto their capacity to exercise

influence on the daily operations of the

company concerned. Box 2.1, left, sum-

marizes a range of direct liabilities for

financial institutions.

11

BOX 2.1

SUMMARY OF FORMS OF DIRECT LIABILITY FOR FINANCIAL INSTITUTIONS

FIGURE 2.1

COMPETITIVE THREATS TO THE FINANCIAL SECTOR

➜ ➜ ➜ ➜

TECHNOLOGICALCHANGE

■ Internet

■ Electronic Banking

■ ATM

■ Virtual Banks

ECONOMICINTEGRATION

■ GATT/NAFTA/WTO

■ Reduced Tariffs

■ Currencies linked

■ Global Capital flows

■ Diversification

MATURATION OF DEVELOPEDCOUNTRYMARKETS

■ Slower Growth

■ Aggressive Exporters

■ Deregulation

DECLINE OFCOMMUNISM

■ Privatization

■ Corporate Growth

■ Global PrivateCapital Flows

FINANCIAL SECTOR COMPETITIVE THREAT

Source: Furrer,“Increasing a Company’s Value Through Environmental Management

■ Liability for the clean up of any contaminated collateral

(for example, asbestos, heavy metals, polychlorinated bi-phenols).

■ Liability for misrepresentation of environmental risks

(e.g. to co-financiers).

■ Liability for negligence in any failure to assess actual and potential envi-

ronmental risks.

■ Direct liability if the financial institution is a principal, general partner

or owner.

Beyond Risk The New Geography of Risk

Primary sources of risk were found to

vary according to the type of financial

institution surveyed. Figures 2.3–2.7, pgs.

12–14, present the results for institutions

that are financing sectors which sub-

divided into the following categories: a)

export-oriented industries, b) infrastructure,

c) domestic general manufacturing, d) high-

tech industries and e) extractive industries.

Summary of findings: A Range of

Risk Drivers

Overall, the enforcement of national

and export market regulations was the

most frequently identified source of envi-

ronmental and social risk for client orga-

nizations. Risk drivers were found to vary

significantly according to the client base.

For those institutions financing export-

oriented industries the key risk driver

to clients was identified as the loss of

markets. Other major risks identified

included the following: shutdown/fines,

reputational risk, protests over critical

resources and, loss of financing.

Risk of shutdown/fines was also identified

as a key risk for infrastructure clients and

domestic general manufacturing along with

reputational risk, protests over critical

resources and loss of market.

13

The Emergence of Indirect Liabilities

Are these legal liabilities also the prime

risk drivers for emerging markets? To

address the topic, IFC’s survey requested

60 emerging market institutions to iden-

tity what they considered to be the most

significant sources of environmental risk,

both for their clients and for their own

institutions directly. The results suggest

evidence of a significantly different risk

profile for emerging markets.

Survey Results: New Stakeholders

Figure 2.2, right, summarizes the most sig-

nificant sources of environmental risk

that institutions identified for their clients

The survey showed that all the respon-

dents in the four groups identified the

existence of significant risk drivers for

their emerging market clients. While

government is identified still as the

key risk driver, new stakeholders have

emerged. In particular, 58% of respon-

dents cited the influence of export market

regulators as a key risk driver for their

customer base1.

12 FIGURE 2.4

INFRASTRUCTURE

FIGURE 2.5

DOMESTIC GENERAL MANUFACTURING

FIGURE 2.2

SIGNIFICANT SOURCES OF ENVIRONMENTAL RISKS for clients identified by all financing institutions

F IGURE 2.3

EXPORT-ORIENTED INDUSTRIES

The most significant long-term sources of environmentalsocial risks as identified by infrastructure institutions

The most significant long-term sources of environmentalsocial risks as identified by domestic general manufacturers

1As an example, in the past 5 years, the impositionof environmental standards requirements has beenwidely perceived as the major driver in a numberof Asian export-dependent markets, particularlyconsumer electronic related. This appears to havebeen one of the main reasons for the rapid uptakeof industry environmental management systemscertified to the internationally recognizedISO14001 standard.

0% 10% 20% 30% 40% 50% 60% 70%

Government (e.g. shutdown, fines)

Export market regulators

Media (reputational risk, negative publicity)

Community

Financiers

Customers

Supply and distribution chain partners

Insurers

International NGOs

Employees

Other

60%

56%

40%

38%

36%

28%

12%

12%

10%

8%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Gov

ernm

ent

Expo

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arke

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oyee

s

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4%4%

17%13%

25%29%

46%46%50%

75%

67%

0%

10%

20%

30%

40%

50%

60%

70%

80%68%

53%

63%

53% 58%

37%

11%

32%

16%

5%

16%

Oth

er

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oyee

s

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lN

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arke

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0%

10%

20%

30%

40%

50%

60%

70%

80%

Gov

ernm

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Expo

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arke

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5%8%

16%

11%

24%32%32%

35%41%

68%

59%

Beyond Risk The New Geography of Risk

For general manufacturing, the primary

risk driver was identified as export market

regulation. After government and export

market regulators: the risk of community

action, the potential for adverse publicity

in the media and possible action from

financiers ranged among the top five

overall risk drivers.

THE CHANGING GEOGRAPHY OF RISKSeveral conclusions can be drawn from

these results. Conventional wisdom sug-

gests that environmental risk derives from

the enforcement of national legislation

with resultant civil and criminal penal-

ties. Government, therefore, is held to

be the key risk driver and where local or

national government does not have the

resources to enforce environmental regu-

lation, there is thought to be no risk.

BEYOND COMPLIANCEA more complex reality appears to be

emerging. A decade ago, information was

accessible by only parts of the interna-

tional community. Distance separated a

company with a poor environmental track

record, or a proposed project with poten-

tially significant environmental impacts,

from key national and international stake-

holders. But changes in information

technology, including the growth in

internet and fixed and cell phone usage

appear to have lessened that distance.

The two Figures 2.8 and 2.9, left, show

changes in international connectivity

between 1991–1997

Connectivity

New technology has enabled the rapid

international flow of communications,

and in the process has begun to empower

previously disenfranchised individuals and

their spokespersons. In particular three

changes have occurred:

■ Stakeholders can readily acquire infor-

mation about the impact on environ-

mental resources.

■ Stakeholders have a low-risk means of

preparing a coordinated international

response to these impacts.

■ Finally, they have a cost-effective

means to implement these campaigns.

Driven by this reduction of distance, a

trend is emerging. A networked economy

is developing in which governmental and

non-government regulators can pose risks

to a company’s operations at a number

of stages in the business cycle, translating

value reduction at the individual level into

value reduction at the level of the firm.

14 15FIGURE 2.8

PRESENTS CONNECTIVITY IN 1991

FIGURE 2.6

HIGH-TECH INDUSTRIES

FIGURE 2.7

EXTRACTIVE INDUSTRIES

0%

10%

20%

30%

40%

50%

60%

70%

80%67%

33%

78%

56%

33%

22%

11%

0%

33%

11%

0%

Oth

er

Empl

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s

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arke

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Gov

ernm

ent

The most significant long-term sources of environmentalsocial risks as identified by high-tech industries

0%

10%

20%

30%

40%

50%

60%

70%

80%

Gov

ernm

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0%0%

50%

0%

25%25%

0%

25%25%

75%

25%

The most significant long-term sources of environmentalsocial risks as identified by extractive industries

IBRD 32423

IBRD 32424

FIGURE 2.9

PRESENTS CONNECTIVITY IN 1997

INTERNATIONAL CONNECTIVITYVersion 2 - 9/91

Internet

Bitnet but not Internet

EMail Only (UUCP, Fido Net)

No Connectivity

No Data

Source: Larry Landweber and the Internet Society.

INTERNATIONAL CONNECTIVITYVersion 2 - 9/91

Internet

Bitnet but not Internet

EMail Only (UUCP, Fido Net)

No Connectivity

No Data

Source: Larry Landweber and the Internet Society.

F IGURE 2.9

PRESENTS CONNECTIVITY IN 1997

Beyond Risk

These risks are presented in Figure

2.10, right.

In this networked economy, corporate

performance depends not solely on reg-

ulatory compliance, but on the ability

to understand and satisfy the expecta-

tions of a wide range of stakeholder

interest groups.

RISKS FOR THE EMERGING MARKETS fiNANCIAL SECTORHaving explored the changing demands

on companies, drivers for these changes

and the potential for company operations

to be affected by the scrutiny from stake-

holders, the survey asked participants to

identify major sources of environmental

risk for their financial institution. Figure

2.11, pg. 17, presents an overview of the

responses.

Overall, the prime risk was identified as

non-performing assets. A number of

other issues were also identified as

significant, again varying by institutional

type. Key risks identified include the fol-

lowing: devalued collateral, reputational

risk and loss of international financial

institution funding.

CONCLUSIONS: EMERGING MARKETS ENVIRONMENTAL RISKThe survey results suggest that the same

change in the geography of risk that has

affected their industrial client base is also

beginning to affect the financial sector.

Stakeholders that have the potential to

affect the performance of financial insti-

tutions are beginning to emerge, adding

environmental risk to the range of

identified business risks, from interest

rate risk, currency risk, and legal risk

to operational risk.

Traditionally, where the primary environ-

mental risk drivers for financial institu-

tions have been restricted to the threat

of direct legal risks, these new stakehold-

ers, active in developed and emerging

markets alike, are posing a wider range of

indirect risks. If a bank borrower violates

labor laws, that borrower can be penalized

in ways that cause it to close down its

operations. The borrower then goes into

default and the bank is left with a non-

performing loan. If an industry faces a

sector-wide boycott or regulation, multiple

companies in that industry can default

on their loans, creating large losses for

individual banks and the banking system.

Allegations of poor corporate governance

can undermine the reputational assets of

the institution.

16 17FIGURE 2.11

ENVIRONMENTAL RISKS FOR FINANCIAL INSTITUTIONS

The New Geography of RiskFIGURE 2.10

DRIVERS OF ENVIRONMENTAL RISK ACROSS THE CORPORATE VALUE CHAIN

CONSUMER BOYCOTT

■ Entry of substitute product■ Product liabilities■ Product replacement

LABOR RECRUITMENT,RETENTION

■ Productivity■ Strikes or sabotage■ Shut-down■ Fines, penalties■ Compensation for health■ Operating liabilities

AVAILABILITY OF WATER SUPPLY

■ Raw materials access■ Raw materials price■ Permit rejection

PERMITTING DELAY OR REJECTION

■ Insurance access or cost■ Construction delay■ Contract lost■ Labor supply■ Contract terms■ Infrastructure obligation■ Cost of capital, access

SALES AND DISTRIBUTION

MANUFACTURING

MATERIALS ACQUISITION

START-UP

0% 10% 20% 30% 40% 50% 60% 70%

Non-performing loans/leases/investments

Devalued collateral

Reputational risk/Negative publicity

Loss of IFI funding

Reduced access to private/international capital

Liability for cleanup of contaminated collateral

Civil or criminal liability for negligence

Increased central bank/MOF regulation

Loss of depositors

Other

58%

46%

46%

42%

35%

23%

10%

4%

6%

13%

Indirect environmental and social risks,

then, can affect a financial institution’s

performance at three levels: at the level

of the single non-performing loan, at the

level of multiple non-performing loans,

and at the level of operating license,

driven by reputational risk.

LEVEL 1: SINGLE NON-PERFORMING LOAN (NPL)At the level of the single non-perform-

ing loan, the operations of these diverse

stakeholders have the potential to cause

loan defaults across the manufacturing

cycle of portfolio companies. Clearly,

these impacts on portfolio companies

may pose a risk of increased costs for a

financial institution. However, the prob-

ability of these risks occurring during the

lifetime of a short-term loan is relatively

small. In addition a number of factors

may lower the risk of default:

■ The company may have insurance.

■ Debt service coverage ratios may be

unaffected and payments may proceed

on time.

■ The financial institution may have

collateral that is unaffected by envi-

ronmental stigma.

More significant for the financial institu-

tion though is the potential for multiple

non-performing loans.

LEVEL 2: MULTIPLE NON-PERFORMING LOANSNew stakeholders have the potential to

cause not just single NPLs but multiple

NPLs within a bank’s portfolio. A growing

trend is for an industry sector to become

the target of a coordinated campaign

involving NGOs, consumers and the

media. When these stakeholders act, they

can affect numerous companies within

the sector at once. These campaigns have

the potential to result in a pattern of

defaults, horizontally across the portfolio.

Key drivers of multiple NPL include the

following:

■ Government regulators may respond

by invoking a change to regulations

that can lead to a virtual closure of

the sector, or the alternative of incur-

ring prohibitive switching costs

■ Export market regulators may impose

restrictions.

■ NGOs may lead national or interna-

tional product boycotts.

■ Consumers may lead product or cor-

porate boycotts, or enter into sector-

focused class action lawsuits.

■ In addition, NGOs, local communities

and employees may adopt a project by

project strategy that has the same effect

of reducing the operating viability of

multiple projects within a sector

18 19

FIGURE 2.13

THE RISK MANAGEMENT GAP

BOX 2.2

FINANCIAL COSTS OF ENVIRONMENTAL NON-PERFORMANCE

The New Geography of RiskBeyond Risk

■ Decreased quality of assets

■ Increased need for provisioning

■ Reduced capital adequacy

■ Increased cost of funds

■ Reduced liquidity

■ Reduced profitability

■ Reduced rating

Unmanaged Risk

Single NPL

Multiple Sector NPL

Multiple Regional NPL

Reputational Risk

COVERED

Current RiskAssessmentCapacity

High

Low

Potential Losses

FIGURE 2.12

RISK TO THE EMERGING MARKETS FINANCIAL SECTOR

LEVEL 3: Reputational risk

LEVEL 2: Multiple non-performing loan

LEVEL 1: Single non-performing loan

Low High

BOX 2.3

PERFORMANCE SIGNALS

HIGH QUALITY BRAND SIGNAL

■ System indicator■ Quality metrics and management■ Positioning for long-term■ Trustworthy

LOW QUALITY BRAND SIGNAL

■ Perception■ Manipulation of market perception■ Lack of management capacity■ Lack of resources■ Short cut/quick-fix■ Untrustworthy

Beyond Risk

■ Resource-based conflict can cause

multiple defaults within multiple sec-

tors, impacting wholesale, retail and

individual accounts.

LEVEL 3: REPUTATIONAL RISKFor deposit-taking financial institutions,

reputation and brand image are of critical

importance. In particular, a deposit-taking

commercial bank’s operations are built

on a borrow-short, lend-long strategy

that depends on three elements:

■ Depositor belief that the bank has

a critical mass of deposits to smooth

over potential asset-liability mismatches

■ Mass trust among consumer base

■ Mass branding as trustable

Core to the operation of a bank then is the

establishment and maintenance of trust.

The cost of environmental and social

campaigns waged against the financial

sector are heaviest when they erode the

trustworthiness branding that underpins

the depositary base. Adverse campaigns

can transform the organization’s brand

assets into liabilities, turning big into

brutal, dominant into dominating,

profitable into predatory. An additional

impact of these campaigns is the signal-

ing of inadequate management systems

and capacity.

Reputational risk as a whole was ranked

the third most important risk after non-

performing loans/investments and deval-

ued collateral.

Significantly, the survey showed that

reputational risk did not just affect insti-

tutions with major depositor bases.

Additional reputation-driven costs that

were highlighted included: the potential

loss of depositors, reduced access to capi-

tal from private financial institutions and

international bond market, increased

central bank/finance ministry regulation,

and loss of IFI funding (see Figure 2.11,

pg. 17). The financial costs of these

campaigns are hard to quantify, but the

combination of these multiple NPLs may

begin to affect the financial performance

of a bank directly.

Key financial impacts (see Box 2.2, pg. 18)

In summary, an emerging trend is for the

rapid transmission of risk: from the risk

of adverse environmental impacts caused

by a company’s operations, through risk

to the company, through to risk for the

financial institution backing the venture.

These direct, portfolio and reputational

risks combined have the potential to

20 21FIGURE 2.14

SUSTAINABILITY OPPORTUNITIES

F IGURE 2.15

OPPORTUNITIES FOR COMMERCIAL BANKS

The New Geography of Risk

BOX 2.4

OPPORTUNITIES FOR FINANCIAL INSTITUTIONS

■ Accessing international funding: Securing longer term capital available from IFIs with environmental andsocial performance criteria

■ Providing loans for environmental projects: Gaining market share in the growing environmental productsand services sector

■ Providing eco-efficiency and cleaner production advisory services: Gaining market share in themid and small cap client base, offering advisory services that boost client business including energy efficiencyaudits, cleaner production assistance, and exporter market opportunity identification

■ Accessing SRI/Ethical investment funds: Gaining access to the long term institutional investors and SRIinvestors with positive and negative environmental and social screens

■ Providing risk management services to high risk industries: Gaining market share in environmentallyand socially complex sectors by providing high value consulting services that enable clients to manage complexsocial and environmental issues such as resettlement, supply chain management, and community relations

■ Attracting improved terms of insurance: Using reduced social and environmental risk as a means of attracting lower insurance premiums at the portfolio and project level

■ Attracting depositors: Positioning the bank as a dependable institution, with ethically sound corporate governance in its dealings with depositors and other stakeholders

0% 10% 20% 30% 40% 50% 60% 70% 80%

Accessing international funding

Providing loans for environmental projects

Providing eco-efficiency and cleaner production advisory services to small and mid-sized clients

Accessing ethical investment funds

Providing risk-management servicesto high-risk industries

Attracting improved terms of insurance

Attracting new depositors

Other

70%

47%

26%

26%

9%

15%

9%

21%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Acc

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ngin

tern

atio

nal

fund

ing

Prov

idin

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term

s of

insu

ranc

e

Att

ract

ing

new

depo

sito

rs

Oth

er

13%

6%

13%13%13%19%

50%

69%

The New Geography of Risk

produce a range of costs for the institu-

tion–from direct liability to single NPLs

to multiple NPLs and reputational risk

(see Figure 2.13, pg. 19).

Significantly, from the credit risk per-

spective, as these losses escalate conven-

tional risk assessment and management

techniques provide less guidance.

CURRENT TRENDSIs this risk likely to grow? A number of

emerging trends for the financial sector

suggest that the relevance of sustainability

issues will continue to increase:

■ The growth of socially responsible invest-

ment (SRI): A growing number of

investors are now conducting negative

or positive screens to ensure the social

responsibility of their investments.

Assets in socially screened investment

portfolios rose by more than one-third

from 1999 to 2001 to top the $2 trillion

mark for the first time ever. This rep-

resents just over 10% of the $19.9

trillion in professionally managed

investment assets in the U.S. SRI

analysis now evaluates financial insti-

tutions on their environmental and

social performance, potentially impact-

ing on the access to capital for these

institutions as well as their portfolio

companies (see Figure 2.19, pg. 23).

■ The emergence of the sustainability ana-

lyst industry: A growing number of

institutions now offer an analysis of

corporate and financial sector practice

in terms of sustainability. In 2002,

Friends, Ivory & Sime released a

benchmark report evaluating the sus-

tainability performance of leading

international banks. Additional lead-

ers in the field include Innovest, and

Bank Sarasin.

■ Sustainable indices: Both the Dow

Jones Group (Dow Jones Sustainability

Index) and the Financial Times

(FTSE4Good index) have introduced

sustainable indices to enable SRI

investors to invest in corporations

having a superior performance on

environmental and social issues.

■ Financial sector standards and codes of

conduct: In parallel with the develop-

ment of more robust methodologies

to evaluate corporate performance, a

number of codes of conduct for banks

are emerging that set out good practice

on sustainability. While there is still

no widely acknowledged template,

current codes include ISO 14000,

FORGE and the UNEP Statement

on Banking and the Environment.

22 23FIGURE 2.16

OPPORTUNITIES FOR LEASING INSTITUTIONS

FIGURE 2.17

OPPORTUNITIES FOR PROJECT FINANCE INSTITUTIONS

Beyond Risk FIGURE 2.18

OPPORTUNITIES FOR PRIVATE EQUITY INSTITUTIONS

0%

10%

20%

30%

40%

50%

60%

70%

80%

Acc

essi

ngin

tern

atio

nal

fund

ing

Prov

idin

g lo

ans

for

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s

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ME

Acc

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Prov

idin

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gh-r

isk

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stri

es

Att

ract

ing

impr

oved

term

s of

insu

ranc

e

Att

ract

ing

new

dep

osito

rs

Oth

er

80%

40%

27%

33%

27%

33%

27%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Acc

essi

ngin

tern

atio

nal

fund

ing

Prov

idin

g lo

ans

for

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s of

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e

Att

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ing

new

dep

osito

rs

Oth

er

64% 64%

50%

36% 36%

21%

7%

21%

0%

10%

20%

30%

40%

50%

60%

Acc

essi

ngin

tern

atio

nal

fund

ing

Prov

idin

g lo

ans

for

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dep

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rs

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56%

25% 25%

44%

25%

13%

0%6%

FIGURE 2.19

SOCIALLY RESPONSIBLE INVESTMENT—GROWTH MARKET

SOCIALLY RESPONSIBLE INVESTMENT (SRI)

Worth over US$2 trillion in US and US$25 billion in UK

Numerous environmental, socialand ethical ranking, rating andscreening methodologies

One of the fastest growing areas of equity investment

Growing importance in Europe

Beyond Risk

Figure 2.14, pg. 21, summarizes the results

for all respondents. Overall, the results

indicate that access to international

funding, providing loans for environmen-

tal projects, providing advisory services

to SMEs and accessing ethical invest-

ment funds are considered the main

opportunities.

These opportunities varied significantly

by institution type. Figures 2.15–2.18,

pgs. 21–23, present the results from com-

mercial banks, leasing, project finance,

and private equity institutions.

Key conclusions include the following:

■ Overall, the main opportunity ident-

ified by all institutions was access

to IFI funding. Providing loans for

environmental projects was seen as

a key opportunity for project finance

institutions and commercial banks.

■ For project finance institutions, providing

risk management services to high-risk

industries also featured highly along

with provision of eco-efficiency and

cleaner production services.

■ For private equity, accessing ethical

investment was rated highly.

24

■ NGO and media campaigns: A number

of NGOs are now directing coordinated

campaigns towards the financial sec-

tor. Key drivers of recent campaigns

include Friends of the Earth, the

National Wildlife Federation, and

Milieu Defensie.

■ International Financing Institution (IFI)

conditions: Finally there is increasing

demand from IFIs for the financial

institutions they invest in to imple-

ment management systems that ensure

the environmental performance of

their portfolio. The procedures of

these IFIs prohibit investment in

institutions without adequate envi-

ronmental management systems. IFIs

actively addressing this through train-

ing and capacity building include IFC,

IIC, Proparco, Coface, EBRD, DEG,

FMO, ADB, AfDB and CDC.

At the same time, a number of leading

financial institutions are beginning to

translate these risks into opportunity, by

transforming these stakeholders from dri-

vers of risk to drivers of reward. In the

survey, the financial institutions were

asked to identify what they consider to

be the major environment-related oppor-

tunities for their business. Key opportu-

nities identified are highlighted below.

3.THE EMERGING MARKET RESPONSEIn practice, how have leading financial institutionsstarted to capitalize on these opportunities? ➜

➜ PERFORMANCE BASELINETo measure participants progress in imple-

menting environmental change, IFC’s

survey sought first of all to create a base-

line of environmental management before

the workshops.

Institutions were asked whether, prior to

the CEA workshop, they had a formal

management system in place to address

the issue of environmental risk when

considering investments/lending. Figure

3.1, left, summarizes the results.

Overall, 22% of institutions surveyed

reported that they had a formal procedure

for environmental management before

IFC’s workshop, with results varying

slightly between commercial banks, pri-

vate equity groups, leasing companies

and project finance institutions.

POST-WORKSHOP: RESULTSIFC’s survey also asked institutions to

identify enhancements they had made to

their environmental and social manage-

ment capability after the workshop. Figure

3.2, left, presents the overall findings of

the survey.

100% of respondents reported that they

had implemented measures to enhance

their environmental and social manage-

ment capability after the workshop.

27FIGURE 3.1

PROCEDURE FOR ENVIRONMENT RISK MANAGEMENT

FIGURE 3.2

ENHANCEMENTS UNDERTAKEN TO ENVIRONMENTAL AND SOCIAL ISSUES fo l lowing the CEA workshop

The Emerging Market Response

Yes, a formal procedure

22%

43%

35%

Yes, an informal procedure

No

Before the IFC workshop, did your institution have a procedure for environmental risk management?

0 5 10 15 20 25 30 35 40

Training of internal staff

Update operating policy

Development ofenvironmental/social procedures

Rejecting projects withenvironmental issues

Working with clients

Report to Directoron opportunities

Communications to clients

External reporting of EMS

Providing environmental loans

Hiring of internalenvironmental consultants/staff

Media events

Other

36%

35%

33%

30%

12%

21%

11%

29%

32%

5%

5%

5%

➜ MOVING BEYOND COMPLIANCE

Despite the possibility of selection and

reporting bias, the results show significant

uptake at the institutional level. The

critical question, however, is the business

value of the initiatives implemented. To

explore the link between sustainability

initiatives and business value, IFC carried

out four more detailed case studies, aiming

for representation across financial institu-

tion types and geographical region. Table

3.1, right, presents the four case studies by

institution type and location.

These case studies address the following

questions:

■ What is the institutional background?

■ What initiatives did the institution

implement?

■ What are the business benefits?

■ What are the lessons learned?

CASE 1PROJECT fiNANCE: LESSONS LEARNEDThe IL&FS case reveals a number of

lessons for project finance institutions:

■ For project finance clients, there is a

critical need for assistance in manag-

ing these issues.

■ The local consultant market does not

fulfill this need.

■ Banks can use their cross-sectoral risk

management expertise to help clients

address these needs.

■ Financial institutions, and their

clients, can have a range of national

and international stakeholders. These

various stakeholders can have different

and sometimes conflicting performance

standards that require extensive nego-

tiation to resolve.

■ The presence of a full time manager

can have a major impact on institu-

tional uptake.

28 29TABLE 3.1

CASE EXAMPLES FOR PROJECT FINANCE, COMMERCIAL BANKING, PRIVATE EQUITY AND LEASING

The Emerging Market ResponseBeyond Risk

TYPE OF FINANCING ORGANIZATION COUNTRYINSTITUTION

Project Finance Infrastructure Leasing and Financial Services Ltd (IL&FS) India

Commercial Banking Banco BBA Creditanstalt Brazil

Private Equity Tuninvest Tunisia

Leasing Raiffeisen Bank Hungary

The key issue now is moving beyond compliance towards the management of real social

and environmental risks”

Background

Infrastructure Leasing and Financial Services Limited (IL&FS) was incorporated in India in 1987 and is one

of the country’s top five non-banking financial companies. Initial shareholders were the Central Bank of

India, Unit Trust of India, and Housing Development Finance Corporation Ltd. IL&FS has offices in Bombay,

Bangalore, Delhi and Calcutta, where the organization provides asset management and retail operations

services in the areas of commercialization of infrastructure projects and financial services.

Key risk drivers for IL&FS clients

Operating in the environmentally and socially complex Indian market, IL&FS identifies a number of potential

sustainability driven risks for its client base. Key risk drivers for clients include the following:■ Export market regulators: Loss of markets, particularly the US and EU, for example, an industrial water

supply project supplying export industries. Should these industries lose export market potential, this in

turn would have a negative impact on the water supply project■ Media: reputational risk■ International NGOs: issue-based campaigns■ Customers: loss of market share■ Government: shutdown, fines■ Community: protest over impacts on critical resources

Key risk drivers for IL&FS

At the same time, infrastructure finance institutions in India face a number of sustainability-related risks:■ Non-performing loans/investments/leases from environmental/social risks■ Liability for clean up of contaminated property/collateral■ Civil or criminal liability for negligence■ Reduced access to capital from private financial institutions/international bond market■ Increased central bank/MOF regulation■ Loss of IFI funding■ Devalued collateral■ Reputational risk/Negative publicity■ Loss of reputation with the concessionaires (state and central governments)■ Reduced ability to raise money in the international markets

Implementation

In response to these emerging risks and opportunities for the institution and its clients, IL&FS sought to

attain world-class expertise in environmental management.

Continued on page 30

CASE 1: PROJECT FINANCE

CASE EXAMPLE: INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LIMITED ( IL&FS)

“

■ Consulting services represent a cost-

effective way of establishing ability to

handle complex projects.

■ The presence of a full time manager

can have a major positive impact on

institutional uptake.

■ For project finance institutions, this

can be a significant selling point,

enabling the institution to win man-

dates for more complex transactions.

The environmental management capacity

that IL&FS has acquired has the potential

to generate significant business benefits

for the institution (see Box 3.1, pg. 31)

30 31

BOX 3.1

PROJECT FINANCE OPPORTUNITIES

CASE 1 Continued The Emerging Market ResponseBeyond Risk

Environmental risk management services

From 1988 to 1994, environment and social issues were the responsibility of a part-time finance/project

executive, helped by external consultants. In 1994 IFC provided introductory environmental risk management

training in Bombay, followed by a workshop on environmental risk management in 1997. During 1995, IL&FS

drew on a WBG line of credit to fund private sector infrastructure projects.As part of the WBG requirements

an environment and social report (ESR) was developed and then adopted.The ESR defined the environment

and social policy framework for project development and implementation. In early 1996, an in-house envi-

ronment and social management group (ESMG) was constituted to implement ESR requirements for all

projects and investments.After operating successfully for 6 years as a dedicated group responsible for ESR

and WBG requirements, in 2001, IL&FS floated a fully-owned company—Ecosmart India Ltd (Ecosmart).

The expertise built-up by the ESMG is domiciled in the new company.Apart from providing environmental

and social management services to IL&FS investments, Ecosmart provides strategic services to various

external businesses including infrastructure projects. IL&FS has also undertaken a range of additional initiatives

as part of its environmental management activities.

Additional IL&FS Initiatives following the ESR■ Communications to clients and media events■ Rejecting projects with adverse environmental issues■ Working with clients to manage environmental impacts■ Hiring of internal environmental consultant/staff■ Development of environmental and social procedures■ External reporting of EMS■ Experience sharing with other financial institutions

Barriers for IL&FS

IL&FS faced two key challenges in implementing its management system. Initially the lack of consulting

expertise proved a major obstacle, but Ecosmart capitalized on this lack of skills and then entered the wider

market. Furthermore, the varying policies and standards of different national and international stakeholders

when handling the complex environmental and social issues of India, presented an additional hurdle. IL&FS

stresses that case studies are needed to highlight the typical differences in IFC/WB policies compared with

those of some developing countries, and to provide guidance on how to handle this conflict.

On the issue of barriers to implementation, IL&FS’s Vijay Joshi comments,“I strongly feel that we have overcome

all the above barriers over the past 6 years. But the major constraint is that recognition of value of environ-

mental and social risk mitigation by implementing an EMS is not, by-and-large, recognized by various

stakeholders, including government agencies.”

SUSTAINABILITY DRIVEN OPPORTUNITIES

■ Win new project finance business

■ Lead and manage new complex transactions

■ Gain access to high asset quality clients

■ Develop fee-generating advisory services

■ Successfully complete complex deals as a result of social and environ-

mental due diligence

Results for ILFS

Sustainability also provides a number of potential opportunities:■ Accessing IFI funding■ Providing loans for environmental projects■ Providing risk management services through Ecosmart to high-risk industrial sectors,■ Cross-promoting IL&FS financing for Ecosmart clients■ Providing eco-efficiency and cleaner production advisory services to small and mid-sized clients■ Attracting improved terms of insurance■ Accessing ethical investment funds■ Identifying funding/financing opportunities in environmental improvement projects

32 33The Emerging Market ResponseBeyond Risk

Over the last few years, it has become increasingly clear that environmental perfor-

mance has significant implications for financial institutions.The key issues for banks and

other financial institutions include credit, reputation and political risks associated with

the environmental status and impact of their portfolios. For commercial and investment

banks, environmental risk management is now a critical part of the credit risk manage-

ment process”

Roberto Dumas Damas

BBA Creditanstalt

Background

Banco BBA Creditanstalt is the thirteenth largest Brazilian bank in terms of assets, with US$6.63 billion

in December 2001. It is positioned as the fifth largest private bank having local control and the largest

Brazilian wholesale institution and is among the five major banks on-lending funds from the Brazilian

development bank BNDES.

Key risks for clients

BBA identifies a number of sustainability-driven risks for its client base:

■ Media: reputational risk■ Customers: loss of market share■ Government: shutdown, fines■ Financiers: Loss of financing

Key risks for commercial and investment banks

In addition, BBA identifies potential sustainability-driven risks for commercial investment banks

operating in Brazil:

■ Non-performing loans/investments/leases from environmental/social risks■ Loss of IFI funding■ Reputational risk/negative publicity■ Liability for clean up of contaminated property/collateral■ Devalued collateral

Implementation

In response to these risks, two BBA staff attended the CEA workshop in Washington. BBA has since

established a comprehensive environmental management system, the primary objective of which is to

focus on economic development that is environmentally sustainable, minimizing exposure to companies

with poor environmental practices and facilitating access to multilateral and bilateral capital.

Key initiatives:

Following the CEA workshop, BBA has undertaken a number of initiatives. Key initiatives include the following:

■ Report to director/board on environmental risks/opportunities■ Communications to clients and media events■ Updating the operating policy of the institution■ Working with clients to manage environmental impacts■ Development of environmental/social procedure■ External reporting of EMS■ Training of internal staff■ Providing environmental loans

Business benefits of EMS to BBA■ In the last 2 years BBA was involved in 27 Projects totalling R$ 7 billion in BNDES financing.■ BBA’s environmental management system has enabled the bank to access the BNDES environment

credit line, ensuring improved loan rates and loan terms not otherwise commercially available.■ BBA has met IFC’s environmental conditions for environmental management and as a result was able to

access US$40 million additional IFC funding.■ BBA was also able to access more than US$100 million of additional funding from other multilateral

agencies with environmental screening (including DEG, EIB, and FMO).■ Lower credit risks. BBA has identified as unacceptable and rejected a number of projects with

unacceptable environmental credit risks.■ BBA has also been recognized as the first domestic Brazilian bank to adopt an EMS.The bank was

highlighted in the Friends of the Earth eco-finances bulletin. BBA’s Roberto Dumas Damas was invited

by UNEP to make a presentation at the Rio+10 UNEP Conference.

Barriers

Key lessons in terms of implementation include the following:

DO

1. Involve the key staff of the bank within the process.

2. Stress how environmental issues can lead to credit risks.

3. Establish clearly the roles and responsibilities of relevant staff members within the process.

4. Identify some projects that went wrong environmentally and the impacts suffered by the funding

providers.

5. Bring environmental issues to the credit committee.

6. Follow environmental issues within approved projects through external consultancy.

CASE 2 : COMMERCIAL INVESTMENT BANKING

CASE EXAMPLE: BANCO BBA CREDITANSTALT (BBA) BRAZIL

CASE 2COMMERCIAL INVESTMENTBANKING: LESSONS LEARNEDThe BBA case reveals a number of lessons:

■ IFIs provide a strong incentive for

environmental performance. ■ Negatively, IFIs can withhold fund-

ing, and the removal of one IFI’s

funding for environmental and

social reasons may cause other IFIs

to withdraw funds.■ Positively, financial institutions

with environmental management

systems can access IFI financing

that is available for development

purposes. This funding is generally

lower cost, as in the case of BBA’s

funding from BNDES’s environ-

mental credit line. Most significantly

IFI financing provides long term

lending at tenors critical to whole-

sale finance that are not commer-

cially available elsewhere.

“

■ BBA’s strategy as a bank is one of

cost-effective risk management. BBA

works with clients to transform border-

line deals. Unlike IL&FS (case 1, pgs.

29–30), though, BBA is not aiming

specifically to acquire a critical mass of

environmental and social expertise,

and position itself to manage environ-

mentally complex transactions. BBA’s

strategy involves a low cost operation

for screening out rapidly the potential

problem project and adhering to donor

performance standards.

■ The main business benefits of the

approach are listed in Box 3.2, pg.34.

34 35

BOX 3.2

SUSTAINABILITY BUSINESS DRIVERS for r isk-management focused commercia l and investment banks

CASE 3: PRIVATE EQUITY

CASE EXAMPLE: TUNINVEST FINANCE GROUP (TUNINVEST)

The Emerging Market ResponseBeyond Risk

■ Reduced management workout time

■ Reduced late stage project rejection

■ Reduced reputational risk

■ Reduced default, loss, provisioning

■ Reduced liability for clean up of collateral

■ Reduced legal liability for misrepresentation/negligence

■ Low cost operating structure

■ Access to IFI capital

Background

Tuninvest Finance Group, established in 1984, is the leading private equity and corporate finance firm in

North Africa, with teams covering Tunisia, Morocco and Algeria.Tuninvest’s corporate finance team has

expertise in mergers and acquisitions, privatization, leveraged buy-outs, initial public offering, and debt

structuring.Tuninvest is currently managing five funds totaling about US$ 60 million with a diversified

portfolio and a hands-on approach.Tuninvest seeks a 4 to 7 year holding period before exit.

Key risks to portfolio companies

Tunisia is a signatory to all the international environment conventions and has signed a free trade agree-

ment with the EU.Tunisia’s environment regulations are based on EU guidelines, with environmental impact

studies required for new projects and extensions. No project can be implemented without the go-ahead

of the national environmental protection agency (ANPE).

Key risks to private equity groups

Most of Tuninvest’s exits have been and are planned to be through sales to strategic investors, usually

from Europe. Compliance of investee companies with international and local environmental guidelines is

an important factor in the company’s evaluation.This also affects the amount of the limited term guarantee

that Tuninvest will provide as sellers to the new owners to cover any future liability that could arise and

that is related to the pre-exit period.

Implementation■ Four members of Tuninvest staff attended the CEA workshops in Washington, Istanbul and Johannesburg.

Following the workshops the company began the process of establishing an environmental management

system. In July 1998, in collaboration with the IFC and SmArtConsult, a local environment consultancy,

Tuninvest formalized its EMS.■ Tuninvest’s tight operating structure and small team size facilitated adoption of the EMS. Key staff

involved included: investment officers, the environmental coordinator, the external consultant, the internal

investment committee, the funds’ investment committee and legal counsel.

Business Benefits of EMS to Tuninvest■ For the investee companies, having an EMS in place improved bargaining power with potential acquirers.

This was the case in several examples of deals in Sweden (SOTUPA/SCA) and France (Interchem/CEVA).■ Tuninvest’s environmental services have enabled the organization to add value to a number of portfolio

companies.The cases of SOPAT and Vitalait (a milk producer) illustrate cost savings through improved

productivity.The SOPAT slaughterhouse used water inefficiently in the process and managed to optimize

the use of water, with substantial savings.Vitalait also managed to reduce the quantity of water used in

the process and began recycling it for reuse.

CASE 2 Continued

DO NOT

1. Leave any doubt among the shareholders concerning the economic and financial importance of the EMS.

2. Acknowledge the EMS as a theoretical textbook only.

3. Build an over-optimistic EMS that cannot be put into practice.

4. Let the EMS be viewed as a time consuming decision making process.

CASE 3PRIVATE EQUITY: LESSONS LEARNEDKey lessons of experience from Tuninvest

for private equity groups include the

following:

■ Undertake the environmental assess-

ment during the due diligence necessary

for making an investment decision.

Today, environmental assessment is

a part of the investment proposal.

■ For export strategy purposes, do not

assess compliance with local regulations

alone. Aim, whenever possible, to

comply with European and interna-

tional standards.

■ Consider also the informal require-

ments imposed by key stakeholders,

including the workforce, customers

and neighbourhood of the company.

■ Avoid projects with complex environ-

mental issues where there is a high

cost to bring them up to standard,

or where management is unaware of

environmental issues and is not willing

to change its stance.

BOX 3.4

UPSIDE OPPORTUNITIES FOR PORTFOLIO COMPANIES

■ Access to SRI funding

■ Access to IFI funding

■ Increased margins through process efficiency

■ Access to new markets

■ Enhanced branding

■ Enhanced sales

37

BOX 3.5

UPSIDE OPPORTUNITIES FOR PRIVATE EQUITY GROUPS

The Emerging Market Response36 Beyond Risk

■ Tuninvest has minimized the environmental risk of its portfolio■ Portfolio companies are focused on exporting and becoming leaders in the Tunisian and Maghreb markets.

Sustainability has a role in helping to make these portfolio companies more attractive for an IPO or a

sale to potential strategic investors■ Sustainability has an additional role in helping portfolio companies achieve sustainable growth and

improve international competitiveness, as well as helping them achieve an Investment Grade rating

in order to tap the bond market■ Tuninvest’s environmental management system forms part of its presentation to potential IFI and institutional

investors. In the first half of 1998,Tuninvest raised an international fund with investors having environ-

mental and social criteria including EIB, IFC, FMO and Proparco.Their success in applying these criteria was

a factor in the selection of Tuninvest as a technical partner in a new regional fund covering Morocco,

Tunisia, and Algeria raised in 2000 with the same investors and European private institutional investors.

CASE 3 Continued

BOX 3.3

DOWNSIDE RISKS FOR PRIVATE EQUITY

■ Reduced valuation through environmental stigma

■ IPO brand impacts

■ Trade sale stigma

■ Incomplete warranties concerning contingent liabilities

■ Liability for misrepresentation

■ Liability for negligence

■ Reputational risk for limited partners

■ Directors liability

■ Criminal liability

■ Introduce environmental covenants

within shareholder agreements.

■ Following investment, instigate a

program with company management

to deal with any major corrective

actions, and review regularly (one

internal review every six months and

once a year by an external expert for

verification).

■ Inform all members of the fund man-

agement team of any significant envi-

ronment issues.

■ Seek any available financial subsidies,

as there are many subsidized credit

lines available, for example for water

treatment units.

■ Even though it is necessary for the

investment officers to be knowledgeable

of EMS and environmental issues, it

proved beneficial having an external

expert to follow and review the inter-

nally prepared EMS.

■ Schedule training for both internal

staff and the management of portfolio

companies.SUSTAINABILITY DRIVEN OPPORTUNITIES

■ Access to SRI funding

■ Access to IFI funding

■ Reflecting environmental risk in reduced portfolio company

purchase price

■ Reflecting superior environmental and social performance

in enhanced liquidity and pricing of portfolio companies

CONCLUSIONS FOR PRIVATE EQUITYSustainability-driven risks can impact

private equity groups directly. Key risks

for private equity (see Box 3.3, pg. 36).

At the same time, sustainability provides

a number of opportunities to add value at

the level of the portfolio company. Value-

added opportunities (see Box 3.4, pg. 37).

Additionally, sustainability may add value

at the level of the fund itself. Core oppor-

tunities for the fund (see Box 3.5, pg. 37)

CASE 4LEASING: LESSONS LEARNEDKey lessons of experience from Raiffeisen

Bank include the following:

■ Smaller cap clients face strong

competitive pressures, with limited

financial and management resources.

At the same time, small cap clients

represent an under-banked segment

compared to large cap top tier clients.

■ For these undercapitalized small cap

clients energy efficiency enhance-

ments can boost operating margins

significantly as well as reducing oper-

ating risks resulting from fire, health

and safety issues and legislation driven

product obsolescence.

■ In addition, management willingness

to engage in longer-term process

enhancement may correspond with

long-term management commitment

to the growth of the company

■ As a result of these factors, the delivery

of energy-efficiency services may pro-

vide both a critical means of accessing

the strategically important smaller cap

market, and a means of reducing the

credit risk associated with the segment.

39The Emerging Market Response38 Beyond Risk

Background

In 1993, Hungary adopted a national energy policy making energy efficiency an integral part of government

energy and environmental policies.While energy efficiency has improved significantly since the late 80s,

these improvements have taken place mainly in the private sector. Energy efficiency in Hungary is still

lower than the EU/OECD countries, with opportunities existing across a range of sectors, ranging from

the communal household sector to the publicly owned sector including central government and local

municipalities.

Raiffeisen Bank was established as Unicbank in December 1986, concurrently with the establishment of

the two-tier banking system in Hungary. It was voted,“Best International Bank in Hungary 1999”.The bank

was interested in exploring the strategically important Small and Medium Scale Enterprise (SME) sector;

a sector that was under-served by the major commercial banks, and where the margins reflected reduced

competition compared to large cap corporate clients.

IFC, through the Global Environment Facility (GEF), offered guarantee funding as a pilot project for

Hungarian Banks to finance energy efficiency projects, opening up a potential opportunity for Raiffeisen

to explore the smaller-cap market. IFC also worked with Raiffeisen to structure the project to mitigate

the risks associated with energy efficiency financing for SMEs, in particular the lower credit worthiness

of small-cap clients, operating risks as a result of technological obsolescence and outdated operating

practices, and the low collateral value of energy-efficient equipment.

Implementation■ IFC, through GEF, offered guarantee funding to Raiffeisen to reduce the risk of their loans to the

SME sector.■ A project officer’s salary was subsidized by 50% for the first year, until a real business line was demon-

strated which justified the bank’s investment in staff resources.■ Working through the IFC’s technical assistance facility, created to support program participants in devel-

oping the energy efficiency finance business, Raiffeisen forged partnerships with potential business

developers, matching its financial structuring expertise with the technical energy efficiency expertise

of project developers. In particular, a business incubator service helped potential project developers

across the range of energy efficiency innovations to develop viable business plans that could be financed.■ A technical assistance project helped Raiffeisen in credit risk assessment for these loans to SME Energy

Service Companies (ESCOs).As part of this credit risk assessment, three officers from Raiffeisen

attended the CEA workshop.The workshop examined potential environmental risks to target Eastern

European clients, ranging from major hazards, fire, occupational health and safety, regulatory shut down

and EU legislation driven product obsolescence, identifying potential opportunities for energy efficient

products with lower risk profiles.

Results■ Raiffeisen’s participation in the pilot program resulted in the immediate identification of deal flow

potential. Core business products included cogeneration development, and boiler/heating center recon-

struction for public sector clients with inefficient and unsafe boiler technology.■ The bank established an energy efficiency business team and continued to year two on a stand alone

commercial basis after the 50% staff subsidy ended■ Raiffeisen invested equity in a project development company Sinesco, whose revenues come from

shared energy savings from industrial clients, with a specialization in the hospital sector.■ In year 3, the bank began financing a number of projects without IFC’s guarantee, judging that it had

acquired enough technical expertise in certain proven energy efficiency market sectors and could avoid

paying the guarantee fee for these projects.■ Raiffeisen expanded further into the retail market, offering $800 loans for homeowners to convert to

gas and upgrade boilers, as well as developing new products to serve the untapped cooperative “block-

house” housing sector.■ As a result of this initiative, Raiffeisen has established a leadership role in serving the strategically

important mid and small cap positions, enhancing market share at the retail level as well as undertaking

pioneer loans for the previously unserved cooperative housing sector for energy efficiency improve-

ment investments.■ The project’s commercial success resulted in a number of banks following Raiffeisen into the sector,

as well as IFC investing an additional $12million from its own account into the Hungarian Guarantee

Facility. Banks currently involved include OTP, K & H Bank and HVB Bank.

Table 3.2, pg. 40, presents a summary of current Raiffaisen portfolio projects and transaction size across

a range of client segments

CASE 4: LEASING

RAIFFEISEN BANK

■ Typical clients with energy efficiency

opportunities include public sector

service providers (e.g. hospitals, trans-

port, utilities) and sectors where energy

prices have traditionally been subsi-

dized but are presently increasing.

■ Opportunities also exist for projects

with short pay back periods in the

retail market

■ Conducting low cost up front energy

efficiency audits is a key method of

establishing client demand for energy

efficiency products.

■ Meeting market demand for these

services depends on the banks’ expand-

ing in-house delivery capability. Bank

staff training on deal identification

and structuring is currently under

preparation at K&H Bank, HVB

Bank and OTP Bank, followed by

banking client workshops in various

locations of the country.

Although they may appear to be the least

likely to have the time or money to focus

on business performance, the reality is

that this group is likely to gain the most

from environmental performance enhance-

ment, as many SMEs use outdated and

resource-inefficient technologies.

These SMEs, therefore, present opportuni-

ties to increase efficiency and reduce costs

through cleaner production, productivity

improvements, access to premium export

markets and management system design.

41The Emerging Market Response

THE SME MARKETSME clients form a key market segment.

As Figure 3.3, right, presents, a number

of factors are increasing the strategic

importance of the SME market for com-

mercial banks and leasing companies.

To what extent can sustainability enable

a financial institution to boost market

share in this strategically important seg-

ment? Conventional wisdom assumes

that SMEs have no time or money to

concern themselves with environmental

issues. Typical SME characteristics include

the following: that they are undercapital-

ized, facing global competitive threats,

using antiquated, resource inefficient

technologies, and operating in areas

with lower enforcement levels of envi-

ronmental regulations.

40 Beyond Risk TABLE 3.2

HUNGARIAN ENERGY EFFICIENCY PROJECT EXAMPLES

PROJECT TYPE TRANSACTION SIZE (US$)

Hospital gas-fired heating system 115,707

Hospital heating project 518,369

Block housing gas heating system 68,435

Meat packing plant gas boiler system 115,340

Railroad station gas heating system 825,902

Street lighting projects (21) 396,388

Block house window changing 114,078

TOTAL 2,154,219

FIGURE 3.3

DRIVERS FOR SME BUSINESS

■ Growth of Bond Market■ Increased IPO’s■ Internet Banking■ Loss of second tier markets■ Margin reductions■ Global financial markets

■ Retail market size■ Growth rate of market■ Local knowledge■ Under-served segments

RETAIL SEGMENT➜

➜

PUSH FACTORS PULL FACTORS

Retail Banking Competition

FIGURE 3.4

EVOLUTION OF BEST PRACTICE

FinancialComplianceProcedures

EnvironmentalValue-Added

EnvironmentalComplianceProcedures

COMPETITIVE ADVANTAGE ➜

➜

➜

RISK MANAGEMENTFAILURE

RISK ASSESSMENT FAILURE

43The Emerging Market Response

Providing these services can generate

business benefits for the leasing company.

Key business drivers include the following:

■ Develop new SME business

■ Cross-sell existing products to supply

and distribution chain

■ Deliver environmental product

extensions

■ Reduce client marketing costs

■ Increase inter-client referrals

■ Increase intra-client referrals

■ Build low cost ‘word of mouth’

marketing addressing corporate

and individual accounts

■ Build media campaigns

CASE STUDY CONCLUSIONS:FROM COMPLIANCE TO VALUE-ADDEDThe four cases above provide examples

of financial institutions not only per-

forming comprehensive financial and

environmental due diligence, but com-

plementing it by offering their clients a

range of sustainability-based products

and services that address the clients’

business needs.

These cases, then, suggest an evolution

in approach: from financial compliance—

where client creditworthiness is assessed

42 Beyond Risk

primarily as a function of the balance

sheet, through environmental compli-

ance—where the institution imposes

environmental conditions to secure client

compliance and, to sustainability—

where the financial institution ensures

compliance as a core part of risk man-

agement. This approach also delivers

environmental value-added to clients

in a way that enhances its competitive

position (see Figure 3.4, pg. 41).

To what extent is the market capitalizing

on these opportunities? Table 3.3, left,

provides examples of current good practice

in terms of sustainability initiatives that

can increase business volume, increase

business margins or enhance the long-

term franchise of the institution.

SUSTAINABILITY AS A BUSINESS DRIVERWhile this list is not exhaustive, it

exemplifies the potential for sustainability

strategies to enhance the core drivers of

institutional performance as Figure 3.5,

pg. 44, suggests.

BOX 3.6

PROVIDING ENVIRONMENTAL VALUE-ADDED TO SME CLIENTS

SME BUSINESS NEEDS

Revenue growth■ Decreased operating costs

(labor, inputs, waste disposal etc)■ Increased productivity■ Enhanced quality control■ Enhanced customer security■ Access to financing

Risk reduction■ Long term local operating license■ Long term international operating

license■ Avoided loss of contracts, strikes,

government shut down, penalties etc.■ Access to insurance

SUSTAINABILITY PRODUCTS

■ Environmental management systems■ Cleaner production audits■ Energy efficiency audits■ Energy efficiency products

TABLE 3.3

SUSTAINABILITY AS A BUSINESS DRIVER— ILLUSTRATIVE EXAMPLES

Sustainability as a Business Driver: Good Practice Review

GOOD PRACTICEBUSINESS OBJECTIVE BUSINESS DRIVER EXAMPLE

■ Winning mandates for complex projects

■ Providing loans to SME clients

■ Winning microfinance market share

■ Winning ethically conscious depositors and credit card holders

■ Winning SME market share throughoffering energy efficiency products

■ Offering finance to sustainable businesses

■ Reducing environmental credit risk provisioning through qualityprocesses

■ Providing fee-based advisory services

■ Gaining access to IFI finance

■ Gaining access to SRI finance community

■ Maximizing employee performance

■ Corporate governance premium

■ IL & FS■ IDFC■ ABN AMRO

■ Banco Cuscatlan■ Rant Leasing■ Banco Real

■ Banco Real■ African Bank

■ Garanti Bank■ Cooperative Bank

■ Raiffeisen Bank■ OTP Bank■ HVB Bank

■ Terra Capital■ Triodus■ ASN Bank

■ Indasia■ Vilniaus Bank■ Bioventures■ Fleet Boston

■ Unibanco■ Tuninvest■ IL & FS

■ BBA■ Banco Cuscatlan

■ Capital InternationalPartners

■ Citigroup

■ Cooperative Bank■ Standard Chartered Bank

■ Bank of Shanghai

Increasing business volume

Increasing margins

Building long-term competitive position

4.LESSONS FROM THE FIELD: SUSTAINABILITY IN ACTIONWhat are the main lessons learned in terms of implementation? ➜

Core opportunities in terms of increasing

business volume include the following:

■ Increasing business volume: to trans-

form undoable deals into doable ones,

and increase the bankable portfolio,

to provide additional sustainability-

driven financing that supplements

existing loan products, to finance new

sustainable sectors, to reduce attrition,

increase client loyalty, and enhance

loan renewal rates

Core opportunities in terms of increasing

business margins include the following:

■ Increasing business margins: to

reduce critical costs (losses, workout

time, insurance costs, capital costs,

legal liabilities and provisions), to

retain fees from advisory services,

syndications/underwriting services,

to reflect value-added in premium

loan pricing

Core opportunities in terms of increasing

business longevity include the following:

■ Increasing business longevity: To

leverage sustainable portfolio perfor-

mance to access expansion capital

(key sources include IFIs, long term

institutional investors, bond markets,

pension funds, depositors and SRI

investors)

44 Beyond Risk FIGURE 3.5

SUSTAINABILITY AS A STRATEGIC TOOL FOR THE FINANCIAL SECTOR

➜ ➜ ➜

VOLUME P/A

LONG-TERM PROFIT

MARGIN DURATION

MORE DEALS BIGGER MARGINS LONG-TERM OPERATION

➜ PERFORMANCE-BASEDMANAGEMENT SYSTEMSChapter 3 has identified a range of

potential sustainability-driven benefits

for financial institutions. What are the

key lessons of experience in terms of

implementing sustainability initiatives?

For an institution to achieve these

sustainability business goals reliably,

it needs a systematic approach. Priority

business goals are identified and the

institutions formal and informal structure

is then aligned to achieve them. Although

these core components are integrated

within the organization’s operating sys-

tems, a common term used to refer to

these elements is an environmental

management system (EMS). Where the

management systems of the ISO14000

series focus on process conformance, the

EMS outlined in this chapter focuses on

business performance.

There is considerable literature available

on the design and implementation of

environmental management systems

designed to secure process conformance,

in particular the ISO14000 series, see

Box 4.1, left.

47BOX 4.1

ISO14000 SERIES

Sustainability in Action

➜ FOR AN INSTITUTION TO ACHIEVE THESE SUSTAINABILITY

BUSINESS GOALS RELIABLY, IT NEEDS A SYSTEMATIC APPROACH.

The International Organization for Standardization (ISO) has published a standard

on guidance for establishing an EMS–ISO14001.This standard is one in a series of

voluntary standards (the ISO14000 series) concerning environmental management,

environmental performance, product life cycle assessment and product environment

labeling. Many organizations globally have undergone third party verification of their

EMS and have attained certification to the standard. Others have opted for the EU’s

EMAS scheme which sets out more demanding requirements. ISO14001 focuses

on implementation of the EMS, while EMAS concentrates on actual environmental

performance. Both standards are voluntary. Some of the largest banks, for example,

Deutsche Bank, UBS, Credit Suisse, Sakura Bank, were among the first in the financial

sector to achieve certification to ISO14001. For financing institutions, the most

important advantage of certification is likely to be a wider public recognition that

the bank’s position on environmental and social issues is sound.

While the strategic choice will vary with

the institution’s context, there are never-

theless a number of key elements that

are consistent across EMS types. This

chapter focuses on five central elements

of the environmental management sys-

tem, see Box 4.2, left.

A) OBJECTIVES AND TARGETSAn EMS has value for the institution

only in so far as it achieves specific busi-

ness objectives. For the EMS to provide

business value it must define a number of

priority business objectives, set specific

measurable targets for achieving them

and then align key elements of the orga-

nizations formal and informal structure

to achieve them.

The choice of these priority objectives

will depend on the business lines, com-

petitive positioning and strategy of the

institution. For commercial banks that are

focused on risk management, as the case

of BBA (see chapter 3) illustrates, a core

goal may be risk reduction. Box 4.3, left

For project finance-focused institutions,

core goals may focus not only on risk

reduction, but also on managing the

environmental and social issues associated

with complex projects, and making those

projects work effectively. Box 4.4, pg. 50

49BOX 4.2

ELEMENTS OF AN ENVIRONMENTAL MANAGEMENT SYSTEM (EMS)

BOX 4.3

POTENTIAL OBJECTIVES FOR RISK MANAGEMENT FOCUSED COMMERCIAL BANKS

Sustainability in Action

The objective of this chapter is to examine

experience based on creating an EMS

that has three aims:

■ To boost the business of core clients

■ To generate a clear return for the

financial institution

■ To work with available resources and

minimize the cost of implementation

Customizing the System

The scope and structure of an EMS,

therefore, varies according to a number

of factors, including institution type,

client base, and strategic focus. Figure 4.1,

right, presents four types of EMS catego-

rized according to strategic focus.

Type One focuses on the management of

key environmental and social risks with

a minimum of resources.

Type Two addresses comprehensive envi-

ronmental and social due diligence to

present the financial institution as world

class in terms of credit risk management.

Type Three manages risk comprehensively

but identifies specific value-added oppor-

tunities.

Type Four orients its business line towards

sustainability.

48 FIGURE 4.1

EMS TYPES ACCORDING TO STRATEGIC FOCUS

Beyond Risk

TYPE ONE: DEFENSIVE—Core Elements of EMS in Place

Management of key environmental and social risks

■ Operational procedure■ Top management support

TYPE TWO: PROTECTIVE—Fully Operational EMS

Systematic management of environmental and social risk

■ Operational procedure■ Application to all relevant sub-projects

TYPE THREE: OFFENSIVE—Fully Operational EMS

Systematic management of environmental and social risk

Limited environmental and social value-added

■ Operational targets and objectives of EMS (enhanced portfolio quality,reduced provisions, reduced workout time)

TYPE FOUR: SUSTAINABLE—Strategic Focus on Environmental & Social Opportunities

Systematic management of environmental and social risk

Systematic environmental and social value-added

■ Environmental and social opportunities prioritized within existing sectors■ New sectors

a) Objectives and targets: setting the key business goals for the institution

b) Applicable standards: identifying the standards acceptable to key stakeholders

c) Procedures: identifying cost-effective processes to achieve those standards

at the project level

d) Roles and responsibilities: allocating roles internally and externally implement

the procedure

e) Communications and reporting: periodic monitoring of the system and internal

and external reporting against targets and objectives

RISK REDUCTION■ Reduced management workout time

■ Reduced risk of project rejection at a late stage

■ Reduced risk to reputation

■ Reduced risk of defaults, and lower loss provisioning

■ Reduced liability for any environmental clean-up of collateral

■ Reduced legal liability for misrepresentation/negligence

■ Continued access to IFI capital

Identifying applicable standards, and

ensuring compliance with them poses a

number of challenges. Relevant stakehold-

ers may be hard to identify. Stakeholders

may claim the right to involvement in a

project without any legal basis for juris-

diction. In addition, the standards of

these stakeholders can conflict. Finally,

they can evolve over time, leaving the

financial institution with outdated criteria

to judge acceptability.

In 2001, to address these issues, a number

of banks based in the Netherlands began

to implement corporate-wide forestry poli-

cies. A core step in the policy rollout was

to identify key stakeholders, including

NGOs and industry clients. Policy for-

mulations were then forged in consultation

with these stakeholders and have achieved

broad consensus.

What are the elements of current good

practice for financial institutions in setting

applicable standards? Key lessons include

the following:

■ Identify local, national and interna-

tional stakeholders whose support is

critical.

■ Identify the standards that they judge

to be acceptable (for example, national

regulations, EU standards, WBG

industry guidelines).

51FIGURE 4.2

COMPLIANCE APPROACH

FIGURE 4.3

FROM COMPLIANCE TO VALUE-ADDED

Sustainability in Action

For private equity groups, core goals may

focus on both downside risk management

and on creating business value for the

investee company. Box 4.5, right

Key lessons include the following:

■ The choice of objectives will depend

on the competitive positioning and

strategy of the institution.

■ The organization should prioritize,

resisting the temptation to set too many

goals and diffuse the institution’s focus.

■ Go for quick wins that may have a

demonstration effect.

■ Pick objectives that have a measurable

financial impact.

■ Pick growth client segments.

■ Focus on early goals that minimize

intrusion on the bank’s operating

processes.

B) APPLICABLE STANDARDSApplicable standards are commonly

assumed to be the national and local reg-

ulations set by government. While these

standards apply for all investments, the

global economy has started to introduce

in addition a range of new stakeholders

with their own standards, and potential

to penalize companies for non-confor-

mance. These international stakeholders

include export market regulators, insurers,

SRI investors, NGOs, local communities,

and financial institutions.

50 BOX 4.4

POTENTIAL OBJECTIVES FOR PROJECT FINANCE INSTITUTIONS that of fer env ironmenta l

adv isor y ser v ices to h igh environmenta l r isk c l ients

BOX 4.5

POTENTIAL OBJECTIVES FOR PRIVATE EQUITY INSTITUTIONS

Beyond Risk

VALUE CREATION■ Increased access to long term capital

■ Reduced cost of capital

■ Fees from environmental due diligence services

■ Positioning for complex structured finance transactions

■ Increased volume of bankable deals

■ Business from new clients

DOWNSIDE AVOIDANCE■ Reduced valuation through

environmental stigma

■ Incomplete warranties

■ Legal liability to limited partners

■ Liability for misrepresentation

■ Liability for negligence

■ Directors liability

■ Criminal liability

VALUE CREATION■ Access to SRI funding

■ Access to IFI funding

■ Reduced risk pricing at purchase

■ Value added through process efficiency■ Value added through new markets

■ Valued added through premium pricing

■ Long term positioning for strategic

investors

DUE DILIGENCE

CONDITIONS

SUPERVISION

“COMPLIANCE”

BUSINESS NEEDS ASSESSMENT

ENVIRONMENTAL PRODUCTS & SERVICES

FOLLOW-UP BUSINESS NEEDS ASSESSMENT

“ENVIRONMENTAL VALUE-ADDED”

➜➜

➜

DUE DILIGENCE

CONDITIONS

SUPERVISION

“COMPLIANCE”

➜➜

➜

iii) Follow-up needs assessment

■ Monitor sector and regional trends

and best practice in terms of both

risk and opportunity.

■ Offer products and services that

respond to evolving market-based

risks and opportunities, renewing

the client relationship, and

reducing attrition.

■ Look for opportunities to use suc-

cessful delivery to one area of a

client’s operations as the basis for

expanding the service, including

delivery across other national or

international plants.

■ Look for operations to cross-sell

products and services across

strategic businesses, for example

linking SME or micro-credit

financing to wholesale/project

finance operations.

D) ROLES AND RESPONSIBILITIESA key challenge for the performance-

based EMS is delivering this value to

clients and the institution without

significantly increasing operating costs.

The performance EMS therefore aims to

mainstream sustainability, minimizing

the central sustainability unit and maxi-

mizing its leverage of internal partners.

53Sustainability in Action

■ Identify the scope of all relevant oper-

ations for which the institution may

be held liable (for example, company

operations, supply chain, distribution

chain, previous site use).

■ Identify potential areas of conflict

between different stakeholders (for

example, conflict between EU market

requirements and local regulations).

■ Bring relevant groups together and try

to forge a consensus over conflicts in

standards, identifying clearly the group’s

final position and its justification.

■ Keep the institution open to dialogue

on adapting standards over time.

C) PROCEDURE: CONFORMANCEVERSUS PERFORMANCEThe new stakeholders identified have

the potential to transmit risk to portfolio

companies and their financiers. In response

to this risk, the standard conformance-

based EMS focuses on a due diligence

process designed to ensure project com-

pliance with applicable standards and

thereby reduce the financial institutions

risk. While individual due diligence

processes differ, the standard compliance

approach follows three broad phases

(see Figure 4.2, pg. 51)

52 Beyond Risk

Due diligence: During the due diligence

phase the financial institution identifies

potential risk drivers, including non-

compliance with national legislation,

potential contamination of site or col-

lateral, occupational health and safety

concerns.

Conditions: As a condition of investment,

the financial institution requires the client

to agree to a number of legal conditions

designed to ensure compliance with

applicable standards.

Supervision: Following investment,

the financial institution monitors client

compliance with applicable standards.

Standard monitoring tools include client

site visits and annual monitoring reports

submitted by the client.

The performance-based EMS reverses the

process with a three-phased approach:

(see Figure 4.3, pg. 51)

i) Business needs assessment: During

the business needs assessment, instead

of identifying risks to the financial

institution the focus is on looking at

the business risks and opportunities

facing the client.

ii) Product and service delivery: Instead

of issuing a set of legal conditions

with which the client must comply

as a condition of financing, the per-

formance EMS focuses on delivering

to the client a range of environmental

products and services that help the

client address those needs.

iii) Follow-up business needs assessment:

Finally, instead of exclusively moni-

toring compliance with the bank’s

standards, the performance-based

EMS aims to track changing markets

risks and opportunities. Follow up

products and services are then iden-

tified that may boost the clients busi-

ness while renewing the relationship

and generating additional business

value for the financial institution.

Key lessons in terms of implementing

the approach include the following:

i) Business needs assessment

■ Sustainability business needs of

clients will vary with sector, region,

size, and market conditions.

■ Work with priority client market

segments in identifying their sus-

tainability business needs.

■ Key market drivers for the client

include: access to new markets,

access to capital, process efficiency,

brand, enhancement to reputation,

access to insurance, employee

productivity, community relations

and license to operate. IFC’s

“Developing Value” report pro-

vides a detailed breakdown of

business drivers across regions

and sectors.

ii) Environmental products and services

■ Identify products and services

geared towards the clients primary

business needs.

■ Form partnerships that reduce the

cost of product and service delivery.

■ Look for related markets, for

example using the institution’s

environmental and social due

diligence processes to increase its

ability to mobilize co-financing

for complex projects.

Within the institution, a number of

existing functions have the potential to

enhance the value of the EMS, without

adding significantly to operating costs.

Table 4.1, pg. 54, summarizes internal

resources and the potential value added

through mainstreaming.

Key lessons include the following:

■ Identify champions within the relevant

business units.

■ Create a guiding coalition with the

champions across relevant units.

■ Align the institution’s incentive

systems to reward good performance.

■ Publicize success stories internally.

E) COMMUNICATIONS ANDREPORTINGThere is a growing trend within the finan-

cial sector towards sustainability reporting.

The British government, for example,

recently outlined requirements for pension

funds to report on their use of environ-

mental performance criteria. A growing

number of bank and non-bank financial

institutions now contain environmental

sections in their annual reports or provide

stand-alone annual environmental reports.

What is the business value of these

initiatives?

55Sustainability in Action

The performance EMS aims to use com-

munications and reporting not as an end

in itself but as a means to generate value

for the institution. To achieve this, the

performance EMS focuses on providing

customized data to stakeholders that

will generate specific rewards for the

institution.

As identified in chapter one, there are

a number of stakeholders with the poten-

tial to have a significant impact on the

financial institution and its clients both

positively and negatively. At the same

time, these various stakeholders have

different goals that cannot all be satisfied

by the one-way communication of the

annual environmental report. The per-

formance EMS therefore aims to select

priority stakeholders, identify the objec-

tives and targets relevant to them and

communicate this data to them effectively.

Table 4.2, pg. 55, provides examples of

the core elements of communications

campaigns targeted at stakeholders. In

each case the campaign aims to meet the

specific sustainability information needs

of differing stakeholders, communicating

them cost-effectively and securing a per-

formance benefit for the institution.

54 Beyond Risk

Key lessons for implementing a successful

monitoring and communications program

include the following:

■ Identify those stakeholders who will

reward sustainability information.

■ Open a dialogue with key stakeholders

to establish their exact information

needs, including the level of detail

required, preferred timing and format

of reporting.

■ Monitor institutional performance

against the required data, rewarding

compliance and diagnosing any sys-

temic faults behind non-compliance.

■ Provide customized data to key stake-

holders in their desired format.

■ Follow up with key stakeholders to

confirm that the reports are providing

credible data. Establish desired

changes in communications and

reporting format.

TABLE 4.1

MAINSTREAMING SUSTAINABILITY

INTERNAL RESOURCES VALUE ADDED

■ Use the institution’s good sustainability track record to recruit high caliber business school graduates

■ Provide skills training to account officers that focuses on using sustainability to win business from priority market segments

■ Provide incentives and rewards for staff that achieve triple bottom lineinvestments (financially, socially and environmentally high performing)

■ Carry out environmental and social risk assessment of investments■ Assist loan officers in differential risk pricing of loans

■ Secure lead management of syndicates for complex projects■ Bring additional co-financing to complex sectors based on the opportunity

for other banks to rely on the sound environmental and social due diligence of the institution

■ Work with account officers and priority clients to identify client sustainability business needs

■ Develop marketing materials and communications tools to approachtarget markets

■ Develop communications tools to mainstream sustainability internally■ Manage SRI communications■ Develop communications materials for approaching additional non-client

stakeholders (NGOs, raters, analysts etc)■ Provide crisis management communications

■ Identify smaller-cap client base with sustainability needs (e.g. export-oriented agribusiness operations)

■ Lead sector-wide marketing to client base (e.g. seminars on processefficiency or on identifying export market opportunities for sustainablecompanies)

■ Complete environmental risk and opportunity screening of the deal flow■ Compete for complex transactions, using environmental value added as

a differentiator■ Build in a linkage to retail market operations as part of community

development for wholesale projects

■ Issue green receivables based on the institutions sustainable portfolio■ Secure access to international funds

■ Establish SRI funds/ethical funds for institutional investors and high networth private banking individuals

■ Increase energy efficiency of facilities

■ Provide strategic overviews■ Provide central environmental and social advisory function

Human resources

Risk/Credit review

Syndicates

Marketing/Corporate relations

Retail relationship manager

Wholesale relationship manager

Treasury

Asset Management and privatebanking

Facilities management

Environment and sustainability

TABLE 4 .2

STAKEHOLDER COMMUNICATION NEEDS

SUSTAINABILITY STAKEHOLDER INFORMATION NEEDS PERFORMANCE REWARD

■ Sub-project conformance with nationalregulations,World Bank polices andapplicable guidelines

■ Examples of best practice projects■ Early warning of problem projects

■ Reduced portfolio risk■ Reduced risk profile of clients

■ Data on value added to the institution(e.g. increased business, increased mar-gins through fees and environmentalcredit risk reduction)

■ Information on progress in managingenvironmental credit risk

■ Transparent communications on institutional policies and project conformance

■ Application of negative screens

■ Access to IFI finance■ Speed of processing■ Positive publicity

■ Access to portfolio coverage■ Access to reduced cost insurance

for clients

■ Enhanced ratings leading to reducedcost of capital, enhanced expansionopportunities

■ Enhanced analyst ratings leading toreduced cost of capital, enhancedexpansion opportunities

■ Support for client projects■ Advisory support on complex

policy issues■ Early warning on problem areas

■ Access to SRI financing, access tolong term institutional investors

IFIs

Insurers

Raters

Analysts

NGOs

SRI investors

IMPLEMENTING THE EMSImplementing the EMS also depends on

following a structured approach. Current

good practice in implementing environ-

mental management systems, as described

in the ISO14000 series, uses a four-phase

process covering: ‘plan’, ‘do’, ‘check’ and

‘review’. Box 4.6, right, describes the cen-

tral elements of the four phases.

56 Beyond Risk

5.CONCLUSIONS AND RECOMENDATIONSFor the financial sector in general, the emergence of a new class of stakeholders with sustainabilityexpectations has presented a series of challenges and business opportunities. ➜

BOX 4.6

FOUR BASIC PHASES OF EMS EXECUTION

PLAN■ Determine strategy and obtain top management agreement and approval

■ Secure budgets

■ Set targets

■ Develop implementation plan

■ Internal communication of strategy

DO ■ Prepare policy and objectives

■ Develop and organize and write EMS procedures and working documents

■ Incorporate procedures into company management practices

■ Establish monitoring and measurement protocols

■ Train personnel

CHECK ■ Audit EMS and check performance regularly against targets set

■ Prepare report

REVIEW■ Review report

■ Evaluate performance and lessons learned

■ Receive feedback on success and failures

■ Set new (improved) targets

➜ The sector’s response is evolving,

ranging from the adoption of a purely

defensive stance in terms of managing

risk, to integrating sustainability into

business operations. At the same time,

significant barriers to implementation

remain, within both developed and

emerging markets.

OVERCOMING BARRIERS TO IMPLEMENTATIONCEA workshop participants were asked

to state whether they had environment-

related risk issues and a system in place

to manage them. Prior to the workshops

22% of those surveyed indicated that they

had a formal system in place. Subsequently,

all respondents reported an enhanced

environmental management capability.2

■ For commercial banks, project financ-

ing and leasing, the two initiatives

most frequently reported actions taken

were training of environmental staff

and updating the environmental policy.

59FIGURE 5.1

MAIN ENHANCEMENTS UNDERTAKEN TO ENVIRONMENTAL AND SOCIAL ISSUES following the CEA workshop

FIGURE 5.2

BARRIERS TO IMPLEMENTING AN EMS

Conclusions and Recomendations

➜ OVERCOMING BARRIERS TO IMPLEMENTATION

2It should be noted that the result may have beenaffected by selection bias. While IFC sought toavoid bias by keeping the survey anonymous, par-ticipants who have implemented systems to manageenvironmental risk may have been more likely torespond to the survey, biasing survey results upwards.

0% 5% 10% 15% 20% 25% 30% 35% 40%

Updating operating policy

Development ofenvironmental/social procedures

Working with clients

Report to Directoron opportunites

Communications to clients

External reporting of EMS

Providing environmental loans

Rejecting projects withenvironmental issues

36%

35%

32%

21%

29%

12%

30%

33%

11%

Training of internal staff

0% 5% 10% 15% 20% 25%

It's not standard banking practice

Clients don't want it

Lack of reward from financial markets

Lack of best practice information

No qualified staff

Lack of specific examplesof environmental risk

Lack of time

No qualified consultants

Lack of internal support

Other

22%

15%

15%

15%

10%

7%

4%

3%

1%

6%

Respondents from leasing companies

and commercial banks identified current

banking practices as the key barrier to

implementation. Other factors included

a perceived lack of reward in the market-

place and a view that their clients were

unresponsive This was also a major

factor for project finance and private

equity groups.

Significantly, a lack of best practice

materials was also cited as a key factor

across all the categories. Figures 5.3–5.6,

pgs. 60–61, highlight the key barriers to

implementation identified by each of the

four institution categories.

■ For commercial banks, the main prob-

lem identified was that sustainability

does not form part of standard banking

practice.

■ For leasing companies, equally, the

main issues identified were current

standard practice and the related

lack of best practice materials.

■ For private equity institutions fewer

overall obstacles were identified, with

potential client resistance highlighted.

■ For project finance institutions, client

resistance was identified as the major

barrier.

61FIGURE 5.5

BARRIERS—PRIVATE EQUITY INSTITUTIONS

FIGURE 5.6

BARRIERS—PROJECT FINANCE INSTITUTIONS

Conclusions and Recomendations

■ For private equity the major action

reported was working with clients to

help them manage their environment

issues, followed by development of

environmental and social procedures.

■ For leasing, the next key initiatives

reported were reporting to the board

and communications with clients.

■ For project finance institutions, devel-

opment of environmental and social

procedures and working with clients,

both featured highly.

Figure 5.1, pg. 59, summarizes the post

workshop results.

The survey went on to ask respondents

to identify what, if any, key barriers were

there to implementing a system. Figure 5.2,

pg. 59, presents an overview of results

across all institution categories surveyed,

indicating that a number of significant

barriers were identified.

Overall, the most common barriers

identified were the following:

■ It is not standard practice in the

financial sector

■ There are insufficient incentives

in the market place

■ Clients don’t want it

■ Lack of best practice materials

60 FIGURE 5.3

BARRIERS—COMMERCIAL BANKS

FIGURE 5.4

BARRIERS—LEASING INSTITUTIONS

Beyond Risk

0%

10%

20%

30%

40%

50%

60%

It’s

not

stan

dard

bank

ing

prac

tice

Clie

nts

don’

t w

ant

it

Lack

of r

ewar

d fr

omfin

anci

al m

arke

ts

No

qual

ified

staf

f int

erna

lly

Lack

of s

peci

fic e

xam

ples

of e

nvir

onm

enta

l ris

ks

Lack

of t

ime

No

qual

ified

con

sulta

nts

Lack

of i

nter

nal s

uppo

rt

Oth

er

Lack

of b

est

prac

tice

info

rmat

ion

50%

19%

31%25% 25%

6% 6%

0% 0%

6%

0%

10%

20%

30%

40%

50%

60%

70%

It’s

not

stan

dard

bank

ing

prac

tice

Clie

nts

don’

t w

ant

it

Lack

of r

ewar

d fr

omfin

anci

al m

arke

ts

No

qual

ified

staf

f int

erna

lly

Lack

of s

peci

fic e

xam

ples

of e

nvir

onm

enta

l ris

ks

Lack

of t

ime

No

qual

ified

con

sulta

nts

Lack

of i

nter

nal s

uppo

rt

Oth

er

Lack

of b

est

prac

tice

info

rmat

ion

60%

40%

33%

53%

27%

13%7%

0%

13%13%

0%

5%

10%

15%

20%

25%

30%

35%

It’s

not

stan

dard

bank

ing

prac

tice

Clie

nts

don’

t w

ant

it

Lack

of r

ewar

d fr

omfin

anci

al m

arke

ts

No

qual

ified

staf

f int

erna

lly

Lack

of s

peci

fic e

xam

ples

of e

nvir

onm

enta

l ris

ks

Lack

of t

ime

No

qual

ified

con

sulta

nts

Lack

of i

nter

nal s

uppo

rt

Oth

er

Lack

of b

est

prac

tice

info

rmat

ion

19%

31%

13%

19%

13%13%

6%

0%

13%13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

29%

36%

21%

29%

21%

29%

14%

0% 0%

29%

Oth

er

Lack

of i

nter

nal s

uppo

rt

No

qual

ified

con

sulta

nts

Lack

of t

ime

Lack

of s

peci

fic e

xam

ples

of e

nvir

onm

enta

l ris

ks

No

qual

ified

staf

f int

erna

lly

Lack

of b

est

prac

tice

info

rmat

ion

Lack

of r

ewar

d fr

om fi

nanc

ial m

arke

ts

Clie

nts

don’

t w

ant

it

It’s

not

stan

dard

ban

king

pra

ctic

e

CONCLUSIONSFour major conclusions emerge:

1. New classes of stakeholder are

transmitting both risk and reward to

companies and financial institutions

as a result of their environmental

and social performance

2. A number of financial institutions

are responding rapidly to these market

drivers, implementing sustainability

initiatives strategically across a range

of internal and external operations.

3. Barriers to implementation, however,

do remain. One key issue identified

is the absence of up to date informa-

tion in the form of industry risk and

opportunity.

4. While supply-side initiatives such as

the CEA workshops play a critical role

in helping to establish best practice,

significant additional barriers include

the perceived low market incentives

for sustainability and as a consequence,

financial sector practices that do not

integrate sustainability systematically

into operations.

63Conclusions and Recomendations

THE ROLE OF THE DEVELOPMENTCOMMUNITY—SURVEY RESULTSIFC’s survey asked participants to identify

priority initiatives to address these barriers.

Survey respondents suggested a number

of potential initiatives from the develop-

ment finance community as high priority.

These include:

■ Market briefings: signaling environ-

mental value-added to regional analysts,

raters, media, central banks

■ EMS–advanced: Overseas workshops

for coordinators on implementing

performance-focused EMS.

■ Industry risk briefings: providing

updated information on international

risks/opportunities by sector.

■ EMS support: “In-house support on

EMS implementation to individual

institutions, region specific environ-

ment and social good practices and

case studies” (workshop participant)

Figure 5.7, right, summarizes the results.

62 FIGURE 5.7

BEST ROLES FOR IFC AND THE DEVELOPMENT FINANCE COMMUNITY

Beyond Risk

RECOMMENDATIONS■ The development community should

explore opportunities to complement

capacity building initiatives with

strategic demand-side initiatives

that enhance market incentives for

sustainable performance

■ A number of market players have

the potential to provide critical

incentives for sustainable financial

sector performance. Performance

drivers identified include insurers,

analysts, raters, co-financiers, central

banks, SRI investors, and long-term

institutional investors.

■ An innovative range of capacity

building programs is necessary to acti-

vate these potential market reward

mechanisms—from new methodologies

for raters and analysts to assess and

reward financial institution perfor-

mance to sustainability criteria for

central bank oversight as a component

of prudential bank management.

0 10 20 30 40 50

Industry risk briefings

Market briefings

EMS advancedworkshops overseas

EMS support toindividual institutions

Local consultant training

Other

47%

37%

31%

28%

16%

3%

65

ANNEX AList of boxes, figures, and tables ➜

This is a blank page

66

Box 4.5 Potential objectives for private equity institutions . . . . . . . . . . . . . . .50

Box 4.6 Four basic phases of EMS execution . . . . . . . . . . . . . . . . . . . . . . . . . .56

FIGURESFigure 2.1 Competitive threats to the financial sector . . . . . . . . . . . . . . . . . .11

Figure 2.2 Significant sources of environmental risks for clients identified

by all financing institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Figure 2.3 Export-oriented industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Figure 2.4 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Figure 2.5 Domestic general manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . .13

Figure 2.6 High-tech industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Figure 2.7 Extractive industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Figure 2.8 Connectivity in 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Figure 2.9 Connectivity in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Figure 2.10 Drivers of environmental risk across the corporate value chain . . . 16

Figure 2.11 Environmental risks for financial institutions . . . . . . . . . . . . . . . .17

Figure 2.12 Risk to the emerging markets financial sector . . . . . . . . . . . . . . . .19

BOXES, FIGURES, & TABLESBOXESBox 2.1 Summary of forms of direct liability for financial institutions . . . . . . .11

Box 2.2 Financial costs of environmental non-performance . . . . . . . . . . . . . .18

Box 2.3 Performance signals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Box 2.4 Opportunities for financial institutions . . . . . . . . . . . . . . . . . . . . . . . .20

Box 3.1 Project finance opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Box 3.2 Sustainability business drivers for risk management focused

commercial and investment banks . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Box 3.3 Downside risks for private equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Box 3.4 Upside opportunities for portfolio companies . . . . . . . . . . . . . . . . . . .37

Box 3.5 Upside opportunities for private equity groups . . . . . . . . . . . . . . . . . .37

Box 3.6 Providing environmental value added to SME clients . . . . . . . . . . . .42

Box 4.1 ISO14000 series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Box 4.2 Elements of an environmental management system (EMS) . . . . . . . .49

Box 4.3 Potential objectives for risk management focused commercial banks .49

Box 4.4 Potential objectives for project finance institutions that offer

environment advisory services to high environmental risk clients . . . . .50

67Annex A

ANNEX BSurvey, methodology, questionnaire pro-forma,uptake of environment initiatives ➜

Figure 2.13 The risk management gap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Figure 2.14 Sustainability opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Figure 2.15 Opportunities for commercial banks . . . . . . . . . . . . . . . . . . . . . . .21

Figure 2.16 Opportunities for leasing institutions . . . . . . . . . . . . . . . . . . . . . . .22

Figure 2.17 Opportunities for project finance institutions . . . . . . . . . . . . . . . .22

Figure 2.18 Opportunities for private equity institutions . . . . . . . . . . . . . . . . .23

Figure 2.19 Socially responsible investment—growth market . . . . . . . . . . . . .23

Figure 3.1 Procedure for environment risk management . . . . . . . . . . . . . . . .27

Figure 3.2 Enhancements undertaken to environmental

and social issues following The CEA workshop . . . . . . . . . . . . . . .27

Figure 3.3 Drivers for SME business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Figure 3.4 Evolution of best practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Figure 3.5 Sustainability as a strategic tool for the financial sector . . . . . . . . .44

Figure 4.1 EMS types according to strategic focus . . . . . . . . . . . . . . . . . . . . .48

Figure 4.2 Compliance approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51

Figure 4.3 From compliance to value-added . . . . . . . . . . . . . . . . . . . . . . . . . .51

Figure 5.1 Main enhancements undertaken to environmental

and social issues following the CEA workshop . . . . . . . . . . . . . . .59

Figure 5.2 Barriers to implementing an EMS . . . . . . . . . . . . . . . . . . . . . . . . .59

Figure 5.3 Barriers–commercial banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60

Figure 5.4 Barriers–leasing institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60

Figure 5.5 Barriers–private equity institutions . . . . . . . . . . . . . . . . . . . . . . . .61

Figure 5.6 Barriers–project finance institutions . . . . . . . . . . . . . . . . . . . . . . .61

Figure 5.7 Best roles for IFC and the development finance community . . . . .62

TABLESTable 3.1 Case examples for project finance,

commercial banking, private equity and leasing . . . . . . . . . . . . . . . .28

Table 3.2 Hungarian energy efficiency project examples . . . . . . . . . . . . . . . . .40

Table 3.3 Sustainability as a business driver–illustrative examples . . . . . . . . . .43

Table 4.1 Mainstreaming sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

Table 4.2 Stakeholder communications needs . . . . . . . . . . . . . . . . . . . . . . . . .55

68 Beyond Risk

71Annex A70 71Annex B

PART 1: INSTITUTIONAL PROFILE

a) Leasing

b) Insurance

a) Extractive industries

b) Export-oriented industries

c) Domestic general manufacturing

c) Project finance

d) Private equity

1. Main operations

of institution

2. Main sectors financed

3. Main countries

4. Employees

5. Branches

6. New transactions a year

7. Average US$ deal size

8. Max. US$ deal size

9. Max. term of transactions

10. Current Int’l Financial

Institution (IFI) partners

11. Which of these officers

deal with environmental/

social issues at your

institution?

12. What level of staff

attended the IFC/partner

workshop?

COMPETITIVE ENVIRONMENTAL ADVANTAGE WORKSHOP: QUESTIONNAIRE

(Please photocopy and complete the following questionnaire on finance and environment.This data, which will be used only at the aggregate level, will

help shape IFC’s program for financial markets capacity-building on environment. Please return to ctefmfeedback@ifc.org, or fax to 1-202-974-4348

by October 8th. Many thanks for your help.)

e) Commercial banking

f) Other (please specify):

d) Infrastructure

e) Hi-tech

f) Other (please specify)

a) 1–20 b) 20–300 c) 300+

a) 1–20 b) 20–300 c) 300+

a) 1–20 b) 20–300 c) 300+

a) <$50k b) $50k–$500k c) $500k–$2 m d) $2 m+

a) <$50k b) $50k–$500k c) $500k–$2 m d) $2 m+

a) <1 yr b) 1yr–3yrs c) 3yrs+

Please list: (FMO, EBRD etc.)

a) None

b) Full-time envtl. manager

d) Top management

a) Top manager

b) Senior manager

c) Account officer

c) Finance executive responsible

for environment part-time

e) Environmental consultant

g) Other (please specify):

d) Designated envtl manager

e) Corporate relations

f) Other (please specify)

Continued on page 72

➜ 100% OF RESPONDANTS REPORTED MEASURES TO ENHANCE THEIR

ENVIRONMENT AND SOCIAL MANAGEMENT CAPABILITY AFTER THE WORKSHOP

73Annex A72 Beyond Risk

PART 11I: FOLLOW UP & RECOMMENDATIONS

a) Market Briefings: signaling environmental value-added to regional analysts, raters, media, central banks

b) EMS Advanced:Advanced overseas workshops for coordinators on implementing performance-focused EMS

c) Consultant training:Training of local consultants to assist clients

d) EMS support: In-house support on EMS implementation to individual institutions

e) Industry risk briefings: provide updated information on international risks/opportunities by sector

f) Other (please specify):

2. Do you have any additional comments or suggestions?

1. What would be the most valuable role for IFC to play?

a) No qualified staff/consultants to operate EMS internally

b) Lack of best practice techniques/materials on environmental

management for financial institutions

c) No qualified environmental consultants to support clients

d) Lack of specific examples of environmental risk

e) It’s not standard banking practice

6. What are the greatest barriers for your financial institution in implementing an EMS?

f) Lack of support internally

g) Lack of reward from financial markets (analysts, raters etc)

h) Clients don’t want it

i) Lack of time

j) Other (please specify):

73Annex B

a) Report to Director/Board on environmental risks/opportunities

b) Communications to clients

c) Media events

d) Update operating policy of institution

e) Training of internal staff

f) Providing environmental loans

5. Following the workshop, how has your institution enhanced its environmental and social management?

h) Rejecting projects with environmental issues

i) Working with clients to manage envtl impacts

j) Hiring of internal environmental consultant/staff

k) Development of environmental/social procedure

l) External reporting of EMS

m) Other (please specify):

Many thanks for all your input.

72 Beyond Risk

PART 1I: LESSONS OF EXPERIENCE

a) Export market regulators: Loss of markets (EU, US etc.)

b) International NGOs: issue-based campaigns

c) Supply and distribution chain partners: Loss of contracts

d) Employees: recruitment and retention costs

e) Community: protest over impacts on critical resources

k) Other (please specify):

1. What are the most significant long-term sources of environmental/social risks for clients in your country?

f) Media: reputational risk

g) Customers: loss of market share

h) Government: shutdown, fines

i) Financiers: Loss of financing

j) Insurers: Loss of coverage

a) Non-performing loans/investments/leases from environmental/social risks

b) Civil or criminal liability for negligence

c) Reduced access to capital from private financial institutions/international

bond market

d) Loss of IFI funding

e) Reputational risk/Negative publicity

2. What are the major potential environmental risks for financial institutions of your type?

f) Liability for clean up of contaminated property/collateral

g) Loss of depositors

h) Increased Central Bank/MOF regulation

i) Devalued collateral

j) Other (please specify):

a) Formal b) Informal c) None

3. Before the IFC workshop, did your institution have a procedure for managing environmental risk?

a) Accessing intl. financial institution funding

b) Providing risk management services to high-risk industrial sectors

c) Attracting new depositors

d) Accessing ethical investment funds

4. What are the major environment-related opportunities for your financial institution?

e) Providing loans for environmental projects

f) Providing eco-efficiency and cleaner production advisory services

to small and mid-sized clients

g) Attracting improved terms of insurance

h) Other (please specify):

Continued from page 71

INTERVIEWSStructured interviews were carried out

with representatives from over 30 insti-

tutions who had participated in the CEA

workshops. Annex C presents a list of

those institutions visited. For the selection

process, three criteria were applied:

■ A focus on regional diversity: covering

Africa, Europe, Middle East, Latin

America and Asia

■ A focus on diversity of financial

institution type, covering commercial

banking, project finance, private

equity and leasing.

■ For cost-effectiveness, a focus on

countries where there are a number

of IFC client institutions.

75FIGURE B3

REGIONAL DISTRIBUTION OF INSTITUTIONS

FIGURE B4

COMMERCIAL BANKS

Annex B

SURVEY METHODOLOGYIFC surveyed 60 institutions, selected

for diversity in region and business type.

Figures B1–3, right, illustrate the break-

down of the sample into the following

categories: a) the main type of business

operations undertaken, b) types of

investments financed, and c) location.

74 FIGURE B1

TYPE OF FINANCING INSTITUTION SURVEYED

FIGURE B2

MAIN BUSINESS SECTORS MOST COMMONLY FINANCED BY THE INSTITUTIONS

Beyond Risk

Other

20%

23%21%

Commerical Banking

Leasing

26%10%

Project Finance

Private Equity

Other

8%

24%

18%

Domestic GeneralManufacturing

Infrastructure

37%

9%

ExtractiveIndustries

4%Hi-tech

Export-orientedIndustries

World

8%

19%

8%

Southern Europe & Central Asia

East Asia & Pacific

27%

6%

Middle East & North Africa

4%Central & Eastern Europe

Latin America &Caribbean

9%

19%

Africa

South & Southeast Asia

0%

10%

20%

30%

40%

50%

60%

13%13%

19%19%

25%

44%

25%

38%44%

56%56%

6%

Trai

ning

of

inte

rnal

sta

ff

Upd

atin

gop

erat

ing

polic

y

Dev

elop

men

t of

envi

ronm

enta

l/soc

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proc

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eR

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ting

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ects

with

envi

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ues

Wor

king

with

clie

nts

to m

anag

een

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nmen

tal i

mpa

cts

Rep

ort

to D

irec

tor/

Bo

ard

on e

nvir

onm

enta

l ri

sks/

oppo

rtun

ities

Com

mun

icat

ions

to c

lient

s

Exte

rnal

repo

rtin

g of

EM

S

Prov

idin

gen

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nmen

tal l

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of in

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alen

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Oth

er

Med

ia e

vent

s

SUMMARY OF INSTITUTIONALUPTAKE OF ENVIRONMENTALMANAGEMENT100% of respondents institutions

reported that they implemented measures

to enhance their environmental and social

management capability after the workshop.

Figures B4–7, pgs. 75–77, provide a break-

down according to institution type.

Specific initiatives varied across institu-

tions as indicated.

77FIGURE B7

PROJECT FINANCE INSTITUTIONS

Annex B

The objective of the interviews was to

build on the information generated by

the questionnaires and that provided by

the participants during the course of the

workshops. In particular they addressed

the following issues:

■ The institution’s background and

operations

■ Potential environment-driven risks

to the institution, and its clients

■ Any identified opportunities for

the institution

■ The major barriers, if any, for imple-

mentation of environmental manage-

ment measures and how they have

been overcome and,

■ The role potentially that IFC could

play in supporting the process

76 FIGURE B5

PRIVATE EQUITY INSTITUTIONS

FIGURE B6

LEASING INSTITUTIONS

Beyond Risk

0%

10%

20%

30%

40%

50%

60%70%

80%

90%

0%6%6%

25%31%

38%

81%

44%

56%

31%

38%

6%

Trai

ning

of

inte

rnal

sta

ff

Upd

atin

gop

erat

ing

polic

y

Dev

elop

men

t of

envi

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enta

l/soc

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proc

edur

eR

ejec

ting

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ects

with

envi

ronm

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ues

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king

with

clie

nts

to m

anag

een

viro

nmen

tal i

mpa

cts

Rep

ort

to D

irec

tor/

Bo

ard

on e

nvir

onm

enta

l ri

sks/

oppo

rtun

ities

Com

mun

icat

ions

to c

lient

s

Exte

rnal

repo

rtin

g of

EM

S

Prov

idin

gen

viro

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tal l

oans

Hir

ing

of in

tern

alen

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tal/s

taff

cons

ulta

nts

Oth

er

Med

ia e

vent

s

0%

10%

20%

30%

40%

50%

60%70%

80%

90%

13%

0%

20%

13%

53%53%

27%

40%40%

60%

80%

7%

Trai

ning

of

inte

rnal

sta

ff

Upd

atin

gop

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polic

y

Dev

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t of

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ting

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ects

with

envi

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ues

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cts

Rep

ort

to D

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Com

mun

icat

ions

to c

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s

Exte

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g of

EM

S

Prov

idin

gen

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Hir

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tern

alen

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tal/s

taff

cons

ulta

nts

Oth

er

Med

ia e

vent

s

0%

10%

20%

30%

40%

50%

60%70%

80%

90%

7%7%

29%

14%

29%29%

43%36%

50%57%

79%

7%

Trai

ning

of

inte

rnal

sta

ff

Upd

atin

gop

erat

ing

polic

y

Dev

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men

t of

envi

ronm

enta

l/soc

ial

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edur

eR

ejec

ting

proj

ects

with

envi

ronm

enta

l iss

ues

Wor

king

with

clie

nts

to m

anag

een

viro

nmen

tal i

mpa

cts

Rep

ort

to D

irec

tor/

Bo

ard

on e

nvir

onm

enta

l ri

sks/

oppo

rtun

ities

Com

mun

icat

ions

to c

lient

s

Exte

rnal

repo

rtin

g of

EM

S

Prov

idin

gen

viro

nmen

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oans

Hir

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of in

tern

alen

viro

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tal/s

taff

cons

ulta

nts

Oth

er

Med

ia e

vent

s

This is a blank page

ANNEX CList of field interviews ➜

➜ IN ADDITION TO THE SURVEY A REPRESENTATIVE LIST OF FI’S WERE VISITED LIST OF FIELD INTERVIEWSPHILIPPINES

1. BPI

2. Planters Bank

3. DBP

4. Walden

5. H & Q

BRAZIL6. Icatu

7. Unibanco

8. Banco Real

9. Bradesco

10. Terra Capital

ARGENTINA11. Banco Roberts

12. Bansud

13. BGN

14. Latin American Enterprise Fund

HUNGARY15. OTP

16. Budapest Bank

17. Raiffeisen Bank

CZECH REPUBLIC18. CSOB

BULGARIA19. Caresbac

20. BACB

21. Black Sea Fund

INDIA22. IL & FS

23. IDFC

24. IndAsia

TURKEY25. Garanti Bank

26. Garanti Leasing

27. Alternatif Bank/Leasing

28. TEB bank

29. Ottoman

30. YKL

31. Rant Leasing

32. Finans Leasing

33. Demir Bank

81Annex C

This is a blank page

ANNEX DCEA Workshop Participants: Phase I and II ➜

85Annex D

Banco Bilbao VizcayaBanco del SuquiaBanco RobertsGaranti LeasingGeorgia Microenterprise BankHoneywell Inc.IDFCRussian Technology FundShorebank Advisory ServicesTCW/ICICI India Private Equity FundTrust Company of the WestTuninvest Private Equity Fund

BanamexBanco Axial S.A.Banco BansudBanco IcatuBanco MercantilGaranti BankICATU Equity PartnersInterbankLatino Leasing S.A.Rant LeasingSuinternacionalSuleasing Internacional S.A.UnibancoZephyr Management L.pAdvent International plc.

➜ UP TO THE END OF 2002, SINCE 1997 21 CEA WORKSHOPS

HAVE BEEN HELD IN THE U.S., SOUTHEAST ASIA, EUROPE AND AFRICA

WASHINGTON DC, USA, November 1997

Alternatif Bank A.S.ANZ Investment BankAzerigazbank Joint-Stock Investment BankBaku Banks/AzerdemiroylbankBlack Sea FundBMCECA-KievDemir Romlease S.A.Demirbank (Romania) S.A.Finans LeasingInkombankPEF-AdventPROPARCORabitaBankRaiffeisen UNIC-LizingYapi Kredi Leasing

PARIS, FRANCE, April 1998

WASHINGTON DC, USA, June 1998

CAPE TOWN, SOUTH AFRICA, October 1998

Accuro AGBanco de GaliciaBrait Capital PartnersDevelopment Bank of Southern AfricaEcobank Transnational Inc.FMO—Netherlands Development

Finance CompanyGalicia Capital Markets S.A.Garanti LeasingGroundwork EnvironmentalINCA—Infrastructure FinanceCorporation Ltd.International Bank of Southern Africa

LimitedSantiago del Puerto y AsociadosSwaziland Industrial Development

Company Ltd.Yapi Kredi LeasingZader Financial Services

87Annex D

Advent InternationalAsaka Specialized State Joint-Stock

Commericial BankBanco BBA Creditanstalt S.A.Banco CuscatlanBanco del ISTMO, S. A.Bank of ShanghaiCapital Alliance NigeriaE & CoEIF GroupEnergy Global International Ltd.FEFAD BankGaranti LeasingGuyana Bank for Trade and IndustryInterbankKazkommertsbankMBA Private Equity SSANational Bank for Foreign Economic

Activity of the Republic of UzbekistanNational Development BankOTP National Savings and Commercial

Bank Ltd.Ottoman BankPeace Technology Management Ltd.Stopanska Banka A.D.TbilComBankUBS

Led by the IFC in partnership with theGiordano Dell’Amore Foundation

Barclays Bank of Botswana LimitedBjelovarska Banka d.d.Demirbank (Romania) S.A.Diamond Bank LimitedEcobank Transnational Inc.Finance Bank Zambia Ltd.Finans LeasingFinansbank A.S.Generale de Banque de MauritanieGuaranty TrustHC Securities & Investment CompanyHussein Choucri Investment BankNAL Merchant BankSEF KazkommertsTrust Merchant Bank

86 Beyond Risk

ANZ Investment BankAsian Infrastructure FundBanco de la ExportaciónBanco General de Negocios (BGN)Banco MercantilBarings Mexfund IIByblos Bank SyndicatedCAL Merchant Bank Ltd.Carribean Loan FacilityDemirbank (Romania) S.A.Environnemental Qualité International (EQI)Finans LeasingFINARCA—Financiera ArrendadoraCentroamericana S.A.Hana BankHungarian Foreign Trade Bank Ltd.India Direct FundInternational Expeditions Inc.NIS Restructuring FacilityOttoman BankRomania & Moldova Direct FundTCW/Latin America Partners. L.L.CWilderness Gate

BancomerBulgarian-American Credit BankCSOB Ceskoslovenska Obchodni BankaGlobal Trust BankHungarian Foreign Trade Bank Ltd.Kula FundLac Enterprise FundRaiffeisen UNIC-LizingTEB LeasingTower FundTuninvest Private Equity FundTurk Ekonomi BankasiVilniaus Bank

WASHINGTON DC, USA, November 1998

Bank Austria Creditanstalt Slovakia A.G.CEAT Financial ServicesEcobank Transnational Inc.Far East Bank & Trust Co.Hambrecht & Quist Philippine VenturesIL&FS Venture Corporation LimitedMercantile Leasing LimitedMidway Infrastructure Holdings Ltd.Nations Trust BankPt Rabobank Duta Indonesia

MANILA, PHILIPPINES, March 1999

WASHINGTON DC, USA, May 1999 MILAN, ITALY, November 1999 WASHINGTON DC, USA, March 2000

WA

SHIN

GTO

N D

C,U

SA 1

999

WA

SHIN

GTO

N D

C,U

SA 2

000

89Annex D

Nordic Investment BankMarocInvest Finance GroupMiddle East Investment BankMuslim Commercial Bank Ltd.ORIX Leasing Egypt S.A.E.JSCB “Parvina-Bank”Small Enterprise Assistance FundsNeftebank Plc.SREI International Finance LimitedTuninvest Finance GroupVUB Vseobecna Uverova Banka

Led by IFC in partnership with the Black SeaTrade & Development Bank, the GermanInvestment and Development Company, the European Bank for Reconstruction andDevelopment, the Netherlands DevelopmentFinance Company, the Nordic InvestmentBank, and the United Nations EnvironmentProgramme-Division of Technology, Industryand Economics.

AkbankAmerican Bank of AlbaniaBaltic American Enterprise FundBanca Romaneasca S.A.Banque Saradar, sal.Baring Vostok Capital Partners LimitedCSOB Ceskoslovenska Obchodni BankaDemirbank (Romania) S.A.Energy House Capital Corporation,

A Sibsidiary of E&CoECO Solutions Co. Ltd.Global Finance S.A.ICICI LimitedIDLC Industrial Development Leasing

Company of Bangladesh LimitedIndustrial Promotion and Development

Company of Bangladesh LimitedILFC International Leasing and Finance

Co. Ltd.IBTC Investment Banking & Trust Co. Ltd.Kenya Commercial Bank Ltd.Kocbank Azerbaijan Ltd.Lebanese Leasing Company

88 Beyond Risk

Led by the IFC in partnership with theGiordano Dell’Amore Foundation

Agricultural Credit CorporationAgricultural Development BankAmity Bank Cameroon Plc.Bank of EritreaBanque de l’Agriculture et du

DeveloppementBanque due LibanCentral Bank of EgyptCentral Bank of JordanCommercial Bank of EritreaCommercial Bank of MalawiElNilein Bank for Industrial DevelopmentHousing and Commerce Bank of EritreaMetropolitan & Allied Bank (Ghana) Ltd.Ministry of Finance, EthiopiaMinistry of Finance, ChinaNational Bank for DevelopmentNational Bank of EthiopiaNile BankPalestine Monetary AuthorityT.C. Ziraat BankasiTanzania Investment BankThe Treasury, Kenya

American Bank of AlbaniaCredit LyonnaisRaiffeisen BankIL&FS Infrastrcuture Leasing and Financial

Services Ltd.Energia Global International Ltd.H&Q Asia PacificIndAsia Fund Advisors Pvt. Ltd.IBTC Investment Banking & Trust Co. Ltd.Komercijalna Banka a.d.Korea Development Leasing CorporationOyak Bank A.S.Planters Development BankScotiabankProvident Group

WASHINGTON DC, USA, June 2000

BUENOS AIRES, ARGENTINA, October 2000

Led by the IFC & IIC

ABN AMROBanco Aleman ParaguayoBanco de Galicia y Buenos AiresBANCO DEL DESARROLLOBanco del Istmo, S.A.Banco FicensaBanco General de NegociosBanco MontevideoBanco Nacional de DesenvolvimentoEconomico e SocialBanco Suquia, S.A.CII

MILAN, ITALY, November 2000

ISTANBUL, TURKEY, November 2000

Led by IFC in partnership with the AfricanDevelopment Bank.

ACEPArab Banking CorporationBHM Banque del’Habitat du MaliBICEC Banque Internationale duCameroun pour l’Epargne et le CreditBMCI Banque Mauritannienne pour leCommerce InternationalBank of AfricaCBAO Compagnie Bancaire de L’Afrique

OccidentaleEcobank—SenegalGenerale de Banque de MauritanieMinistere de l’Economie et des Finances,

SenegalEnvironmental Tropicana ConsultantsSODIDA Societe de Gestion du Domaine

Industriel de Dakar

DAKAR, SENEGAL, March 2001

Compass Capital Management LLCDELTA LEASING HABITACIONAL, S.A.MSB Bank Argentina, S.A.Nuevo Banco Santa FeHSBC Bank Argentina S.A.

MIL

AN

,ITA

LY

DA

KA

R,S

ENEG

AL

WA

SHIN

GTO

N D

C,U

SA 2

000

ISTA

NBU

L,T

UR

KEY

91Annex D

Led by IFC in partnership with the AsianDevelopment Bank and the Japan Bank forInternational Cooperation.

AIF Asian Infrastructure Fund Management Ltd

Asia Opportunity Fund L.P.Bank NISPBank of South Pacific (BSP)BNP Paribas Asset Management Asia Ltd.Dragon CapitalHambrecht & Quist Philippine VenturesJ.P. Morgan Partners AsiaLiberty Pacific Direct Investments Ltd.Lombard/APIC (HK) LimitedMuslim Commercial Bank Ltd.Oman Orix Leasing Company SAOGPrudential Asia Infrastructure

Investors LimitedSME Loan Hong Kong Ltd.The Vysya Bank LimitedUnited Bank For Africa Plc.United Leasing Company Limited

Led by IFC in partnership with the AsianDevelopment Bank, Development Bank of South Africa and United NationsEnvironment Programme.

Banco de Microfinance de MozambiqueBHM Banque del’Habitat du MaliBioventuresBrait Merchant Bank Ltd.CitibankDFCU BankDFCU Leasing Company LimitedDiamond Bank LimitedEcobank Ghana Ltd.Ecobank Nigeria Plc.Ecobank TogoEFG-Hermes Holding-SAEEmerging Markets PartnershipFirst City Monument BankFirst Merchant Bank of ZimbabweLimitedFRB/RMBIDFuturegrowth Asset ManagementGensec BankInvestment Banking & Trust Co. Ltd.Novo BancoORIX Leasing Egypt S.A.E.Rand Merchant BankThe Mauritius Commercial Bank Ltd.Tuninvest Finance Group

90 Beyond Risk

Led by the IFC in partnership with theBlack Sea Trade & Development Bank, the German Investment and DevelopmentCompany, the European Bank forReconstruction and Development, theNetherlands Development Finance Company,and the Nordic Investment Bank.

Advent InternationalAxon LeasingBanc Post S.A.Banca Romaneasca S.A.Bank TuranAlemCitibankCroatia BankaCroatian Bank for Reconstruction and

DevelopmentDemir Romlease S.A.Finansbank A.S.Hipoteku banka—Latvian Mortgage and

Land BankRaiffeisen BankEFM (Slovak Post Privatization Fund)TBC BankTurk Venture PartnersVUB Vseobecna Uverova Banka

Led by the Inter-American InvestmentCorporation in partnership with theCorporación Andina de Fomento and the IFC.

A2R LtdaAmigos da TerraAndrade Gutierrez Concessoes LtdaBanco CuscatlanBanco del BajioBanco del Pichincha C.A.Banco Grupo el Ahorro HondurenoBanco Impropsa S.A.Banco Interfin S.A.Banco Nacional de Obras y Servicios

Publicos. S.N.C.Banco PopularBanco SantosBrazilian MortgagesBBVA Bancomer, S.A.CitibankCaja Los Andes S.A.ComprartamosFSB International Bank Plc.Wamex S.A. de C.V.Nuevo Banco de Santa FeSmall Enterprise Assistance FundsEnvironmental Enterprises Assistance FundSuleasing Internacional S.A.TCW/Latin America Partners. L.L.C.Royal Merchant Bank and FinanceCompany LimitedThe Royal Bank of Trinidad and

Tobago Limited

MIAMI, USA, June 2001 BUDAPEST, HUNGARY, June 2001 JOHANNESBURG, SOUTH AFRICA, November 2001 MANILA, PHILIPPINES, November 2001

JOH

AN

NES

BUR

G,S

OU

TH

AFR

ICA

BUD

APE

ST,H

UN

GA

RY

MA

NIL

A,P

HIL

IPPI

NES

92 Beyond Risk

Led by the Inter-American InvestmentCorporation in partnership with the IFC.

BancentroBanco CuscatlanBanco Interfin S.A.Banco Latinoamericano de

Exportacion—BladexCEA Latin American CommunciationsCommunication Equity AssociatesDarby Overseas Investment Lt.Deutsche Asset ManagementInter-American Investment CorporationNegocios RegionalesRepublic Bank LimitedScudder InvestmentsSuleasing Internacional S.A.

Led by the Inter-American InvestmentCorporation in partnership with theCorporación Andina de Fomento and the IFC.

Alliant Energy InternationalAmerica Leasing Advent InternationalBanamexBanco Bradesco S.A.Banco Caja SocialBanco de Credito CentroamericanoBanco Interfin S.A.Banco Itau S.A.Brazilian SecuritiesCori Capital Partners, LPCorporacion Financiera Nacional y

Suramericana S.A.Corporacion Interamericana para el.

CIFI—Financiamiento de Infrastructura, S.A.

Financiera Calpia S.A.FINARCA—Financiera ArrendadoraCentroamericana S.A.FondElec America Latina Inc.Grupo Financiero BanorteLatin America Agribusiness Development

CorporationMibancoSmall Enterprise Assistance FundsSu Casita HipotecanaSuramericana De InversionesTrust Company of the WestUnibancoWalden InternationalZephyr Management L.p

MIAMI, USA, February 2002 MIAMI, USA, September 2002

Organized by IFC

Agroindustrial Finance CompanyAlenirBaltiskii LeasingDelta LeasingDeutsche Leasing VostokKMB LeasingKNK LeasingMicroleasingMoscow Leasing Company

MOSCOW, RUSSIA, October 2002

ANNEX EReferences, links and further information sources ➜

MIA

MI,

USA

95Annex E

A2R website: http://www.a2r.com.br/

ABN AMRO website:www.abnamro.com/com/about/about.asp

Angus Reid Group (Ipsos-Reid), Corporate SocialResponsibility and the BC Public, Canada, April 2000.

Arnold, Matthew B. and Robert M. Day. The NextBottom Line: Making Sustainable Development Tangible.World Resources Institute. 1998.

Atkisson, Alan, “The Innovation Diffusion Game”in Making It Happen, Spring, 1991.

Bank of America. 2000 Environmental ProgressReport.2000

Bank of Shanghai website:www.bankofshanghai.com.cn/annual2000/

Barclays Bank website:www.investor.barclays.co.uk/company/overview.html

BASIX website:www.basixindia.com/frame_index.htm

Bierma, T.J., F.L. Waterstaraat, and J. Ostrosky,1998. “Chapter 13: Shared Savings and EnvironmentManagement Accounting,” in The Green BottomLine, Greenleaf Publications: England

Bourguignon and Morrisson 1999; Milanovic 1999.

Brundtland Report, 1987.

Calvert website: www.calvert.com/index.html

➜ IN ADDITION TO THE SOURCES LISTED WE ARE VERY GRATEFUL TO ALL THE

INDIVIDUALS AND COMPANIES THAT HAVE CONTRIBUTED TO THIS CASEBOOK

Citibank website: citibank.com/citigroup/corporate/issues/data/env.htm

Cleemann, “Insurance and Sustainability: RiskAssessment within a Changing World”, AllianzCenter or Technology/Industrial TechnologyInternational Symposium, Zurich, 2001.

Co-operative Bank, Partnership Report. (2000 and 2001)

ENTOVATION International, “The KnowledgeValue Proposition”

Environics, Conference Board, PWLF, 1999. 1999Millennium Poll. Business for Social ResponsibilityPowerPoint Presentation, 2001.

Furrer, “Increasing a Company’s Value ThroughEnvironmental Management”, 2000.

Garanti Bank website:www.gbm.ru/garanti/turkey.htm

Green Investment Funds: PIM Project, Dutch CaseStudy for OECD/EVN/EPOC/BIO, 1997.

Gunningham and Sinclair, “Barriers and Motivatorsto the Adoption of Cleaner Production Practices”,ACEL Final Report, 1997.

Hikima, Masafumi, “New Horizons in AssetManagement: The Japanese Experience.” Seminardelivered at the International Symposium,September 2001, Zurich.

Holman and Kahn, “Intangibles: The Measures that Matter,” Ernst & Young LLP, 2001.

HSBC Holdings website: www.hsbc.com/

96 Beyond Risk

Hurley, Stephen T. Internal Marketing: Measuring and Communicating Value. InformationTechnology Services Marketing Association, 2001.

Infrastructure Development Finance Corporationwebsite: www.idfc.com/pages/Environ/environm.html

International Finance Corporation: www.ifc.org.

Innovest Strategic Value Advisors, Inc., “EconomicDrivers and the Role of Environmental Ratings,”2001.

Information Technology Services MarketingAssociation Benchmarking Study, 2000.

Information Technology Services MarketingAssociation. Internal Marketing: Measuring andCommunicating Value Workshop, 2001.

IFC, SustainAbility and the Ethos Institute:“Developing Value: The business case for sustain-ability in emerging markets”, 2002.

Jeucken, Marcel: “Sustainable Finance andBanking: The Financial Sector and the Future ofthe Planet” 2001.

Longstreth, “The Prudent Man Rule Today—Variations on a Single Theme”, 1987.

National Development Bank website:www.ndb.org/pages/e-fri.htm

Quirola, Dania, Michael Schlup and UlrikaWennberg, “Sustainability Reporting: BeyondGreenwash”, Minutes of workshops of the 7thERCP Lund, Sweden, May 2001.

Raiffeisen Bank (Hungary) website: www.raiffeisen.hu

“Sarasin Sustainable Investment: Concept &Implementation”. Sustainability Forum, September 2001, Zurich.

Social Investment Forum. 2001 Trends Report on Socially Responsible Investing Trends in theUnited States.

Sustainability Report, “Trends in SustainabilityReporting,” online material:www.sustreport.org/business/report/trends.html

SustainAbility Report, Buried Treasure: Uncoveringthe Business Case for Corporate Sustainability. 2001

Trillium Asset Management website: www.trilliuminvest.com/pages/sri/sri_home.asp

Tuninvest Finance Group website:www.tuninvest.com/

UBS Media Relations, “UBS and the Global Compact.”Zurich/Basel, July 26, 2000.

UNEP Finance Initiatives: www.unepfi.net.

Weiler, “Review of Environmental Risk Managementat Banking Institutions and Potential Relevance ofISO 14000", Working Paper, April 1997.

DES

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ENVIRONMENT AND SOCIAL DEVELOPMENT DEPARTMENTInternational Finance Corporation

www.ifc.org/enviro

Beyond RiskFirst printing, June 2003Printed on recycled paper using soy-based ink

Principal author: Leo Johnson, Consultant

Copyright © 2003International Finance Corporation (IFC)2121 Pennsylvania Avenue, N.W.Washington, D.C. 20433USAwww.ifc.org

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or trans-mitted in any form or by any means: electronic, electrostatic, magnetic tape, photocopying, recording or otherwise, without permission of in writing from IFC.

The findings, interpretations, and conclusions expressed in this study are entirely those of the author andshould not be attributed in any manner to IFC, the World Bank Group, affiliated organizations, or tomembers of its Board of Executive Directors or the countries they represent. IFC does not guaranteethe accuracy of the data included in this publication and accepts no responsibility whatsoever for anyconsequence of their use.

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